Fed statement sees huge market swings

19 March, 2015

Rob Bastin

After a quiet start to the week yesterday provided some key data and large swings in exchange rates. The day kicked off with the Bank of England minutes and unemployment figures for the UK and the results were somewhat damaging to the pound. The BoE minutes were unchanged as expected but the unemployment did provide some short comings on analysts’ expectations. Average earnings were forecast to increase further to 2.2% but instead dropped to 1.8% and the Unemployment rate remained at 5.7% when a drop to 5.6% was expected. The reaction to this was that sterling dropped over 1% throughout the day against all major currencies as more bad news was added to current negative sentiment.

Sterling has had a tough month losing between 3 and 5% against other majors with the biggest losses against the stronger currencies such as the US Dollar and Australian Dollar. GBP/EUR has only began losses since this time last week dropping nearly 5 cents in as many days which is one the biggest weekly drops seen against the Euro since the recession, and a clear signal that the recent run has come to an end for now and further losses are expected in the coming weeks. You can however still fix your rate at these excellent levels for a future date with just a 10% deposit, something which has been increasingly popular with our clients in the last month.

GBP/USD had lost 9 cents in 3 weeks with the USD being the winner from recent concerns in the Euro-zone. Last night all eyes were on the Federal Reserve and their latest interest rate decision where rates were held at the record low of 0.25% for another month. The accompanying statement removed the word ‘patient’ from its language with regards to future rate increases and instead focussed on being more assured that inflation was on the increase to the 2% target. Markets now expect a longer rate for this first hike and so the Dollar quickly retracted its recent gains with both the pound and the euro spiking up 4 cents against the greenback in a matter of hours, before correcting back down again overnight. This was a huge reaction as Dollar buyers of the last few months scrambled to get out of their positions causing rare volatility that is likely to switch short term sentiment towards the Dollar.

Today we have had another rate decision this morning from the Swiss National Bank with rates held at their record low of -0.75%. The rest of day is relatively quiet with yesterday’s announcements likely to drive the market for the coming days.