Volatility the name of the game in mixed day all round.

Tom Tong29/Jan/2014Currency Updates

GBP

Yesterday saw a more choppy day for the pound as the smooth sailing of Monday trading was swept away by major data releases from both sides of the Atlantic.

Strong UK GDP came in yesterday as expected at 2.8% year on year for quarter 4, an increase of nearly a percent on the same period last year. The result was met by a sharp drop in the value of the pound against the majority of its pairs, falling 0.4% against the dollar in an hour and losing a quarter-cent in the same time against the Euro. Sterling managed to regain some ground from both currencies over the course of the day and finished just a splash below where it started.

It seems that good growth figures were already priced in to the pound’s value by investors earlier in the week, a classic example of sentiment triumphing over fact. Elsewhere, David Cameron pledged an overhaul of UK business rates in an attempt to address the imbalance between online and high street retailers, while equity markets reacted well to some slightly more encouraging corporate earning figures.

Today sees just minor house price data released, although Mark Carney will be speaking around Lunchtime. He is expected to reiterate last Friday’s stance by distancing himself from an interest rate rise. We could see some movement off the back of it.

EUR

Most of the action from Europe yesterday came from nations outside the Eurozone. Ukraine had another turbulent day as the Prime Minister and government resigned, while the Turkish central bank almost doubled interest rates in an aggressive move to counter the Lira’s recent slide. The repo rate jumped 4.5% to 10%, while the benchmark top rate was hiked up from 7.75% to 12%. Inevitably, the Lira jumped as result. Both countries have ambitions of joining the EU, and subsequently the Euro, so longer term investors will be factoring in news from these countries.

We did see very slight increases in consumer sentiment from France and Italy, up to 86 and 98 respectively. Good news, but not enough to protect if from an early morning plunge against the dollar. The single currency jumped right back up again on the back of poor US data, before falling over the afternoon to close a tenth of a cent down. It suffered a turbulent day against the pound, with volatility ranges in excess of 0.4%. The end result however was little different from where it started, hovering around highs of a year.

More news from Germany today, including consumer confidence surveys and 10 year bill auctions.

USD

As the FOMC sat down to begin their monthly discussions on monetary policy, the US currency had a markedly mixed day that was marred by disappointing durable goods orders.

The dollars recent serene progress against the euro was punctured yesterday by the poor data, falling half a percent yesterday, although the greenback still managed to finish slightly up on the single currency. It remains at weekly high levels and the consensus is that we are unlikely to see any movement to the downside from. The Dollar in the near future.

The battle for supremacy between the dollar and Sterling has been one of the more interesting asides for the past month or so, with investors displaying their extreme fickleness by changing their backing daily. Yesterday saw four separate, distinguishable movements in both directions, although the end result was that GBP/USD finished exactly where it started. The pound does seem to have the edge at the moment, sitting just below two yearly highs.

Today will see the Fed make a decision on both interest rates and the rate of reduction in their quantitative easing programme. The expectation is for another $10 billion reduction in asset purchases to $65 billion a month, and interest rates to remain at 0.25. The only possible diversion from this would be a reduction in purchases by a smaller amount, although that remains unlikely.

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Written by Tom Tong

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