Federal Reserve cautious amid global market turmoil, EU referendum continues to put pressure on Sterling

Matthew Ryan18/Feb/2016Currency Updates

Expectations for the next US interest rate hike by the Federal Reserve remain the main driver in the global currency markets. UK businesses with trade flows to the US continue to hedge their exposure in order to mitigate currency risk in anticipation of higher rates in the US.

Last night’s minutes from the January Federal Open Market Committee (FOMC) meeting were mostly in line with January’s statement. Policymakers in the US clearly remain concerned about increased uncertainty in the global economy.

Plunging oil prices and slowing growth in China were cited, with officials particularly concerned about the potential drag on the US economy from these external factors.

During the London session we saw another mixed, albeit mostly positive labour report in the UK. The level of wage growth, a measure closely watched by the Bank of England when deciding on monetary policy, ticked up marginally in the three months to December.

Excluding bonuses, earnings increased by 2% on an annualised basis, higher than expected and marginally above the 1.9% recorded in November.

This will be welcome news to Bank of England hawks and ends a series of consecutive declines in wage growth extending back to August, a run that has caused analysts to push back their expectations for the first post-financial crisis interest rate hike in the UK.

On the EU referendum front, David Cameron remained in talks to convince EU leaders to accept proposed reforms ahead of this afternoon’s crucial summit in Brussels. The deal could pave the way for a UK referendum as early as June.

In other financial news, a sharp rally in oil prices and stock markets provided a boost for the US Dollar, while sending the safe-haven Japanese Yen and Swiss Franc lower and commodity-dependent currencies considerably higher.

Major currencies in detail:


Wednesday’s relatively strong labour report provided some support for the Pound yesterday, with the currency finishing 0.2% higher.

Unemployment missed expectations on Wednesday, remaining unchanged at 5.1%, although decreased in absolute terms, with the number of people in employment reaching a record high. The level of unemployment remains at a 10-year low and continues to prove a bright spot for the UK economy.

A continued improvement in labour market conditions this year should, in our view, allow the Bank of England to begin its long awaiting monetary tightening cycle at the end of 2016.

With no economic data in the UK today, all attention will be focused on developments in Brussels, with talks set to begin just before 17:00 UK time this evening. If no deal is struck, discussions can spill over into Friday morning.


The single currency was mostly range-bound before the Fed minutes, ending 0.3% lower versus the Greenback.

Economic data in the Eurozone continues to disappoint. Construction output fell in December on a month previous and on an annualised basis. The construction industry contracted by 0.4% in the 12 months to December, adding to concerns of an economic slowdown after industrial production fell by 1% during the same time period.

Worryingly, the Eurozone’s two largest economies, France and Germany, both clocked up declines, which doesn’t bode well for overall growth.

The European Central Bank will be releasing the accounts from its latest monetary policy meeting just after midday today.


The US Dollar ended 0.2% higher following the Fed meeting, although still down for the year so far.

There was little new information released from the Fed last night, with the US Dollar barely moved as a result. Despite downside risks from abroad, the committee still expects economic activity to expand at a ‘moderate pace’, which we believe will allow for a gradual increase in interest rates at roughly once a quarter this year.

Before the Fed’s minutes, industrial production data painted a far more upbeat picture of the US economy. Output in the industrial sector expanded by 0.9% in January to mark its highest monthly growth since November 2014. This large jump largely reflects a surge in electricity usage following last month’s cold winter weather in the US.

Producer prices also showed tentative signs of inflationary pressures returning to the economy, ticking upwards by 0.1% in the month.

Today should be a fairly quiet day of economic announcements in the US, with jobless claims this afternoon the highlight.


Receive these market updates via email



Written by Matthew Ryan

Strategy Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.