Federal Reserve maintains need to be "patient" in monetary policy statement

Enrique Díaz-Álvarez29/Jan/2015Currency Updates

GBP

A fairly quiet day’s trading for Sterling saw the UK currency finish 0.1% down on the US Dollar, and 0.4% up versus the single currency.

No data out worth noting in the UK on Wednesday. Bank of England Governor Mark Carney did, however, give a low key speech at an event at the headquarters of the Department of Foreign Affairs and Trade in Dublin after London markets had closed. Carney’s focus was on Europe, claiming ECB “timidity” had cost the Eurozone after the financial crisis. UK inflation was once again a talking point, with the Governor reiterating low oil prices were “unambiguously positive” for the UK.

A couple of announcements set to take place in Britain on Thursday. Nationwide house prices and the Confederation of British Industry Distributive Trades survey for January will likely cause a moderate level of Sterling movement.

EUR

After boasting strong gains against the Dollar on Tuesday, the single currency weakened against greenback after the FOMC statement to finish 0.5% down on the Dollar.

A number of second-tier releases in Europe yesterday led to a moderate level of volatility in the Euro. As is to be expected given the recent fall in commodity prices, the Import Price index in Germany fell once again in December. The year-on-year figure of -3.7% marked the thirteenth consecutive month of annualised declines, and the largest fall in more than three years. The price for goods imported was 1.7% lower in December than a month previous. Before trading began in the UK, the GFK Group announced that their measure of consumer confidence is at a 13 year high having been buoyed this month by a rise in disposable income. The Consumer Confidence Survey climbed above expectations to 9.3. Meanwhile in Greece, financial markets were in turmoil as the new anti-bailout coalition government stood by its determination to defy its creditors. Greece’s banking index plummeted by 30% to a new low as a result.

Today bodes to be a very busy morning for the Eurozone economy with Euro volatility to be expected. At around 9am Germany will be announcing its latest employment figures, followed later in the day by its measure of inflation which is expected to follow trend and dip into deflation for the first time since 2009.

USD

The Dollar climbed against its peers after the Federal Reserve statement, with the US Dollar index 0.3% up.

Earlier in the day it was announced that mortgage applications in the week ending 23rd January declined in the US. The volatile measure released by the Mortgage Bankers Association slipped by 3.2%. In its monetary policy statement last night, the Federal Reserve appeared slightly more hawkish than markets had expected. The FOMC reiterated the need to be “patient” on interest rates, although Fed Chairwoman Janet Yellen gave an upbeat assessment of the US economy. “Solid” economic growth and “strong” job growth suggest that the central bank is on course to hike interest rates later on in 2015. The optimistic tone of the statement did, however, acknowledge the recent stubbornly low inflation and the likelihood that price growth will remain sluggish in the coming months.

Weekly jobless claims data will, as always, be released at 1.30pm on Thursday by the US Department of Labor. This will be followed by Pending Home Sales for December at 3pm.

Rest of the world

The Singapore Dollar touched its weakest level against the US currencies since August 2010 after the Monetary Authority of Singapore surprised markets by announcing it will seek a slower depreciation against a basket of currencies. In Russia, the Ruble ended the day 1.5% down against greenback after another fall in oil prices.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.