FOMC takes centre stage
27 July, 2016
As we have seen for some time now, the Pound remains stuck in a fairly tight range against most of the world’s major currencies. The immediate weakness post the referendum has been realised, a certain amount of stability is in place thanks to the quick decision on a new PM and the markets now await revelations of how negotiations on Brexit will work, coupled with ultimately the triggering of Article 50. There is not likely to be any significantly moves on this front for some time as the new PM and her cabinet find their feet, and as a result the day to day data releases of economic data have come to the fore once again in terms of the market’s focus.
Last week we saw the lowest figures for a number of years in the UK’s manufacturing sector and this was viewed as the first post-Brexit sign that the expected recession is on the way. The Pound was forced to the lower part of the two cent range it had been occupying against both the Euro and the Dollar as a result, and has continued to trade defensively rather than pushing back up ever since. Today sees the first UK GDP release that includes some data from after the referendum, although only a few days’ worth, so we would be surprised to see any immediate down turn. But as GDP is the measure recessions are based on, we can expect this to be scrutinised by the markets for any signs of what is to come.
The main data of note today though comes from across the pond, where the FOMC give their monthly policy decision, and announce if they are altering US interest rates. The US has shaken off many of the fears of a slowing economy that were around at the turn of the year, and is moving steadily towards the prospect of interest rate increases, but the feeling is this month could be a bit soon. Interest rate rises cause currency strength and so a surprise hike today, could see the already strong Dollar capitalise further. Even just a hawkish tone from the FOMC, indicating the likely timing of the expected hike, could be enough to strengthen the Greenback.
For those of you with a currency requirement coming up it is a hard decision at present because we really do find ourselves mired in the doldrums. Rates are not altering much on any given day, and barring any surprises, are probably not expected to. However, the one thing that is certain is that the stability for the Pound is only the calm before the Article 50 storm, which is likely to cause massive upheaval and further Sterling weakness, so while the rates are calm it makes sense to protect yourself against choppy seas ahead and a forward contract could be just what you need – speak to your Currency Index account manager today, to find out how a forward works.
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