Fed Hint At Growth Concerns, US Dollar weaker against Pound

9 October, 2014

Simon Eastman

Yesterday was fairly flat on trading with some slight gains against the euro for the pound following the better than expected Halifax house price index produced a better than expected result of 0.6 percent compared to the forecast 0.2 percent. With a lack of any other UK or EU ecostats this was all the markets had to go on and the pound seemingly benefitted albeit muted against the US dollar.

The main release of the day was in the evening so investors had the whole day to wait until they had anything to go on. The minutes of the last Federal Reserve meeting were due out at 7pm BST and on release the markets reacted to the less hawkish stance from the US policymakers and sold off the dollar. We saw weakness against all the majors for the greenback as the minutes came across more cautious than was hoped, showing concerns over downside growth and general slower worldwide economic growth. It also showed that some members in discussions were more in favour of a more protracted timescale for rate rises, leaning more towards the second part of next year rather than the first. So it seems the dollar has reached its limit and for now we could see further selling, but of course nothing is guaranteed and it could all change again next week! Remember, markets move on the rumour rather than the fact so it only takes a comment or two to change investor sentiment.

So today we look towards another central bank, this time it’s the turn of the Bank of England who meet today at midday. We await to hear more news on interest rate rises with speculation rife as to when the rises will start. Its widely expected to be the first quarter of 2015 but some feel it could be as early as the end of this year. It’s unlikely we will know too much more today, more likely when the minutes are release later this month but Mark Carney has been known to release a statement so anything along these lines could throw up some volatility.

We have already had Australian employment data overnight, with lower than forecast results, weakening off the dollar initially but with the overall unemployment rate improving its managed to claw back the losses and some, gaining nearly a cent and a half overall against sterling. German trade balance this morning missed the mark too but with a flurry of poor data from the EU powerhouse recently markets are less surprised and we’ve had little downside for payments made in the single Euro currency.

Still to come, we have Greek inflation and unemployment data, the BoE policy meeting, Canadian house price data and a speech by ECB president Mario Draghi at 4pm. So plenty to go on and volatility a possibility as investors digest the figures so stay in touch with the team at CI and discuss your upcoming requirements.