Federal Reserve announces end of quantitative easing in a hawkish statement, with US economy “on track”
30/Oct/2014 • Currency Updates•
The Pound rose slightly overall on the Dollar during London trading despite a number of less than favourable data figures released by the Bank of England yesterday. The Fed announcement, however, caused the Pound to fall by 0.8% on the Dollar after markets had closed.
Consumer Credit for September, while coming in above expectations, fell in August to £0.915B. The Bank of England release, which measures the amount of money individuals borrowed in the previous month, reached its lowest level since July it was announced on Wednesday morning. In addition, Net Lending to Individuals also fell MoM by £0.5B to £2.7B, equalling its lowest level since June. Unexpected declines in both mortgage approvals from 64,054 to 61,267 and the money supply by 0.7% MoM, capped a disappointing morning for Sterling as the currency lost early ground on both the Dollar and the Euro.
Today looks set to be a quiet day for the UK economy with the only announcement of any note the housing prices for October to be released by Nationwide during morning trading.
A day of low volatility for the single currency ended with the Euro marginally up against the Pound by 0.1% and after four consecutive days of appreciation.
More disappointing data out of Germany as the average yield on Federal Bonds auctioned in the country fell for an eleventh consecutive month to 0.87%, down from 0.93% on previous. Consumer confidence in France, the regions second largest economy, also fell on expectations by remaining at 85 for October, below the 86 expected by economists. Furthermore, Spanish retail sales also experienced a decline, falling by 1.8% MoM, although registering a slight 1.1% increase YoY in September.
Despite this weak data, the Euro touched its strongest position against the Pound in a week after the relatively less encouraging releases in the UK. Volatility expected today with key announcements coming out of Germany. The unemployment rate for October will be announced at 9am London time, followed by inflation data in early afternoon.
The US Dollar was given a major boost after the London markets closed last night with the expectation that the Fed will be ending its quantitative easing measures. This caused the US currency to climb by 0.8% against its major peers and by 0.8% on the Euro.
The greenback did, however, fall for a fourth consecutive day, the longest run of declines since July, in the lead up to the Federal Reserve interest rate announcement. The US Dollar index fell slightly by just shy of 0.1% during London trading, hitting its lowest level in a week. The Mortgage Bankers Association (MBA) announced that mortgage applications fell by 6.6% this week, although this is understood to be a very volatile figure so the market impact was muted.
The major announcement of the day, however, came from the Federal Reserve who maintained the benchmark interest rate of 0.25% as expected. In a more hawkish than expected statement the Federal Reserve retained its stance on interest rates, insisting that rates will remain close to zero for a “considerable time”. Further, it sounded more upbeat in the matter of underutilisation of the labour force than previously. A completely new paragraph was included in which it suggested that more precise guidance on the exact timing of interest rates will be forthcoming at subsequent meetings. All in all, the Federal Reserve is content with the evolution of the US economy and seems ready to hike rates in the second quarter of 2015, slightly earlier than interest rate markets were predicting prior to the meeting. Unsurprisingly, the Dollar rallied against most major currencies right after the statement release.
Rest of the world
A currency that continues to be in the news is the Brazilian Real, which yesterday saw an upturn in fortunes, rising by the most of any world currency. Speculation as to who recently re-appointed President Dilma Rousseff will appoint as her economic team, tasked with restoring growth and improving confidence, caused the currency to climb by 1.3% on the Dollar before the Federal Reserve announcement.