As expected the BoE and the ECB left interest rates on hold at 0.5% and 0.25% respectively. We did see GBP/EUR gain some momentum while Mario Draghi was speaking during his monthly press conference with the rate pushing above 1.21 and flirting with 1.2150. However the rate slowly retraced in the afternoon session and with this morning’s poor industrial and manufacturing data out of the UK we are firmly back in the mid 1.20’s. On the whole we are still fairly optimistic on Sterling and we would hope that this is just a blip along the path to a higher rate. Mario Draghi was certainly doing his best to talk down the Euro yesterday as he pushes for a weaker currency but his word had only a temporary effect and the single currency remains resilient.The U.S. senate confirmed Janet Yellen as the new Chair of the Federal Reserve by a vote of 56 to 26 on Monday evening. She becomes the first women to take charge of the US central bank but in terms of policy she will likely remain on the same path that Ben Bernanke has paved over the last 4 years with quantitative easing firmly at the forefront of any policy. The markets will be happy to hear this as they have been the main beneficiaries of these easing policies over the last few years. I do think at some stage in the next year or so central banks will need to come up with a new idea to the current “throw money at it” solution which is perpetuating the current cycle. It will be worth keeping an eye on the Fed movements as last month saw the first tapering of QE and I would expect further tapering this year. How this will affect the Dollar will depend on the severity of the cuts and should the market deem it too severe we could see a bout of USD strength.
After yesterday’s slightly disappointing lack of volatility we should hopefully see the market get a little more excited today with the U.S. non-farm payroll and unemployment rate out at 13.30. Should the unemployment rate fall to below 7% for the first time since 2008 we could see EUR/USD back below 1.35 and GBP/USD back into the 1.63’s. The non-farm payroll figure is almost certainly going to be positive it will just be a case of how positive and whether it is above the expected figure of 195k. If you are wary of any negative outcomes you should think about securing your deals before the data comes out and before the market starts to position itself so no later than 13.15 I would suggest. As we have said over the last few weeks the rates for buying EUR and USD are very good at the moment when compared certainly with the last year but even looking back further, GBP/USD is near the highs of the last 4 year range.
Given the lack of volatility this week even with a lot of key data out, leads me to think that some traders have been keeping their powder dry ready to position themselves over the next few weeks, so we could see the markets get a lot choppier once they have decided their strategies for the year.
Have a great weekend.
Written by David McNeill.