The FOMC sent ripples through the FX market last night after their unexpectedly optimistic forecast on growth, the economy and employment. They added that they could begin to scale back their economic stimulus plan at the end of the year. As a result the USD strengthened across the board by almost 2% against most major currencies and caused larger movements elsewhere. GBP/USD fell back below 1.55 after its recent push up into the 1.57's and the pressure is now on Sterling to maintain these levels otherwise it is feasible to think we could see a slide back down to 1.50, where we were at only a month or so ago. In the space of 4 weeks the rate has bounced from 1.5020 to 1.5730 and back down to the current level of 1.5450. This fluctuation of around 4.5% shows the need especially if you are a company to use currency hedging tools to secure your prices. The best method is to use limit orders and stop losses at varying intervals to take advantage of when the rate is advantageous and to protect on yourself against downside risk when it is not. Speak to your trader for information about orders and hedging strategies.Although Sterling is now in focus it received a welcome boost this morning with a strong set of retails sales figures which came in well above expectation at 1.9% against a consensus figure of 0.2%. This is good news for the economy showing that people are still willing to spend their money and another sign towards a slowly improving situation. GBP/EUR climbed back over 1.17 as a result of the figures but in general GBP/EUR has been fairly range bound between 1.17 and 1.18. George Osborne is seeking to sell the government's 39% stake in Lloyds after stating that the bank was in a good position and investor interest was growing. He would use the sale of these shares to eat into the national debt which the government is trying to bring down via austerity measures. The sale is unlikely to go through in the near future but when it does happen it should have a positive effect on the UK economy and on Sterling, so this is definitely something to look towards in the future.
AUD continues its dramatic slide against Sterling and the Dollar. We are pushing towards 1.70 on GBP/AUD and AUD/USD is nearing 0.90 after hitting levels not seen since 2010. It looks like we have pushed through all the potential resistance levels and are heading in one direction only. If you are a seller of AUD it may be time to think about securing some protection just in case we it does not rebound. The Australian government will be happy but I think this might be the signal for investors to start pulling out of the country, which in the long term will be bad for them. Still Australia has had a fantastic period over the last 4 years or so and as we know markets by their very nature are cyclical.
HUF was one of the currencies most affected by the FOMC announcement losing over 2% against the Euro and Sterling, along with an alarming 4% slide against the Dollar in a matter of hours. Taking a wider view on EUR/HUF we are now back to levels around the 300 mark which we touched momentarily a week ago. Whether we stay at these levels and push on higher is debatable given the volatility HUF has shown since the start of the year but a sustained break above 300 would see the rate push towards the high of the year, 307. In the space of just over a week the rate has fallen from 300.93 to 290 and back up to the current level of 299.96.
Enjoy the rest of the week and the weekend.
Written by David McNeill