Markets regain stability after the Fed statement
20/Mar/2015 • Currency Updates•
A comparatively lower key day for Sterling on Thursday compared to a day previous saw the UK currency end trading 0.7% lower on the Dollar.
More dovish statements from the Bank of England yesterday after the central bank’s chief economist Andy Haldane claimed interest rates in the UK were just as likely to be cut as they were to be raised. Haldane echoed Wednesday’s minutes by citing significant deflationary pressures given the relative strength of the Pound and warned policy needed to stand ready to move off either foot in the coming months. He also claimed lingering spare capacity in the labour market was weighing on wage growth, which on Wednesday dipped to 1.6%. However, Haldane’s surprising claims are clearly out of step with those of the MPC, with an interest rate hike still looking more likely than a cut.
Another mostly subdued day in Britain today with the only major data release that of Public Sector Borrowing at 9.30am.
Normal service was resumed for the Euro which recommenced its decline on the Dollar having spiked on Wednesday evening. The single currency ended 0.5% lower on the Greenback.
EU finance ministers met once again in Brussels on Thursday in order to hold talks over Greece’s debt. European Parliament President Martin Schulz raised the stakes by claiming Greece was running out of time to obtain funds, although European Council president Donald Tusk played down the importance of the meeting. The next round of the ECB’s targeted LTRO, the central bank’s long term refinancing operation, came in lower than previous at €97.80 billion; well down on last month’s €129.84 billion. However, this was above forecasts due to the lower rate offered, making them particularly attractive to banks. Elsewhere, the ECB reiterated its claim that its quantitative easing program had already eased financial conditions in the Eurozone at the release of its economic bulletin.
Friday will be a similarly quiet end to the week for the single currency. The announcement of the current account at 9am may cause moderate volatility in the Euro this morning.
The Dollar stabilised against its peers yesterday after the massive sell-off following the eventful Federal Reserve statement on Wednesday evening. Remarkably the Dollar index ended trading roughly where it was before the FOMC, having climbed by 0.65% during the London session.
Initial claims for jobless benefits on Thursday came in broadly in line with expectations. The weekly figure remained mostly unchanged at 291,000, remaining solidly below the 300,000 threshold. However, the more representative four-week moving average climbed 2,250 to 304,750. Continuing claims for the week previous came in lower, at just over 2.4 million. Commerce Department data released yesterday showed that the US current account deficit widened sharply in Q4 of last year to its largest since 2012. The measure increased to $113.5 billion from a revised $98.9 billion in Q3 after income from goods and services exports declined by 1.3% due to softer demand from Europe and Asia. In other releases, the Conference Board’s leading indicator rose by 0.2% for the second straight month, while the Philly Fed manufacturing survey surprised on the downside at 5.0 in March, down on last month’s 5.2 print.
No major data out in the US today, although Federal Reserve member Dennis Lockhart will be speaking at 2.20pm London time.
Rest of the world
The Swiss and Norwegian central banks both kept interest rates unchanged on Thursday morning at -0.75% and 1.25% respectively. Meanwhile, a host of global currencies gained on the Dollar following the overreaction from Wednesday’s Federal Reserve statement. The Real, Rand and Forint all climbed by over 2% during the course of the day.