Markets in the balance as the week ends

13 November, 2015

Tom Arnold

The last couple of weeks on the currency markets have for once been a pretty clear picture, with the major central banks giving us a good idea of what to expect in the immediate future. We heard from Mario Draghi a couple of weeks ago who said that the Eurozone was likely going to need more quantitative easing and hence the Euro weakened, we then heard from Mark Carney who said that there were not going to be any interest rate rises in the UK during 2016 and the Pound weakened, and then we heard from Janet Yellen who was quite positive about the chances of imminent interest rate rises in the US, and so the Dollar strengthened, which also put further pressure on the Euro.

Once rates settled we found ourselves with the best buying levels for the Euro for 3 months, and good opportunities for US Dollar sellers with the best selling rates for 7 months. This was further aided at the end of last week with a much better than expected US non-farm payroll number and this week with UK unemployment posting the best number for 7 years.

However things are never easy I am afraid, and yesterday saw a massive spanner put into the works by various members of the Federal Reserve. In a series of speeches across the afternoon, policy maker after policy maker, including the once again dovish Janet Yellen, made it clear that interest rises as soon as next month are not what they want. They didn’t close the door completely, but the damage was done, the market jittered, the Dollar weakened, the Euro strengthened, the Pound dithered and rates slid away.

Our regular readers will know that this is no great surprise – uncertainty inevitably wins out, but for those of you with an upcoming currency purchase it does remove some of the certainty from those early week decisions. “The Euro rate is looking good I will wait and see how much better it gets in the coming days”, now doesn’t seem like such a good plan, “I need to buy US Dollars, but rates seem to be going against me day after day”, now doesn’t seem such a worry. The reality is that if the FED doesn’t raise rates, the Dollar will almost certainly drop off and the Euro will surge back, so the best Euro buying rates for 3 months could be a very short term option…

Today will only serve to throw more wood onto the fire of volatility with European GDP due this morning and US retail sales this afternoon. GDP is expected to show limited growth and the US numbers are expected to be positive – on the face of it could the early week moves be supported, or could a failure to achieve cause yesterday afternoon’s changes to be exacerbated?

We shall have to wait and see. In the mean time make sure you stay in close contact with your CI account manager to be kept informed of exactly what is happening and how it is likely to impact your currency requirement.