Yellen continues to hold the path of austerity.

12 February, 2014

Rob Bastin

Tuesday’s trading was another quiet one for the pound as we continue to consolidate at current levels ahead of today’s key release. The Australian Dollar continued its recent good run after some strong House Price data with the dollar now having gained 10 cents against the pound in the last few weeks. The main focus in the afternoon was the speech by the new chairman of the Federal Reserve Janet Yellen. Whilst tackling a number of different questions, Yellen declared that the central bank will continue to implement stimulus cuts through QE tapering and that interest rates would continue to remain low for an extended period. Following these comments the US Dollar retreated in the afternoon’s trading against both the Euro and the Pound.

So after a relatively quiet and stable start to the week today could be crucial for sterling exchange rates over the next few weeks. At 10:30am the Bank of England release their latest quarterly inflation report for the UK and a speech will be given by the governor Mark Carney. The markets are expecting some further forward guidance from Mr Carney today on the timescale of future interest rate hikes since unemployment has dropped close to its 7% target so quickly. There is a growing fear that this guidance could be a potential trip wire for Sterling as a more Dovish approach is expected from the Bank of England. With a recovering housing market and with inflation itself already at its target level and at risk of dropping further, there is little room for any hike in rates in the near term and a statement to back this up or postpone any expectation of rate changes until 2015 is very likely. Of just as much concern is another speech from the ECB president Mario Draghi at 3:30pm who will be expected to maintain his positive and bullish stance that was delivered to the markets last week to help support the Euro further.

Today’s events have the potential to push the pound beyond its current year to date lows and could set a tone for the coming weeks so if you have a up and coming currency requirement make sure you are in close contact with your broker so that we can help guide to maximising your transfer.