Interest rate decisions are always of interest to investors. Currency markets tensed yesterday in anticipation of the US Federal Bank’s decision yesterday but the outcome was as expected which has seen the US dollar weaken.
Today there is a mixed bag of data out from the UK, Eurozone and US, all which have the potential to cause currency movements. To mitigate risk on your upcoming international payments, call us today.
Mixed outlook for the UK
Despite autumn setting in, there was some positive news for the UK from the Office for National Statistics (ONS) in terms of the public sector borrowing numbers. The ONS chief economist stated that ‘the referendum result appears, so far, not to have had a major effect’. The ONS went on to say that ‘it hasn’t fallen at the first fence but longer-term effects remain to be seen’. The Bank of England (BoE) appears to agree, as it has signalled the potential for an additional rate cut. Sentiment will continue to fluctuate and be driven by two key factors: economic data, and the outlook from the eventual triggering of Article 50.
UK public sector borrowing numbers were positive and rose less-than-expected in the last quarter, official data showed on Wednesday. However, other recent data has been less than favourable, something that the Organization for Economic Cooperation and Development (OCED) has recognised. The OCED published its latest global projections which included a massive downgrade to UK growth in 2017. It has halved its growth forecast to 1%, half the projected rate in June (which was based on the Remain campaign triumphing). A Bloomberg survey revealed that participants expect interest rates to be cut to zero before the end of the year, with growth being at the worst since the recession in 2009.
Whilst sterling is not seeing the sharp declines we saw earlier in the year, it is certainly under pressure. The market will keep a close eye on BoE Governor Mark Carney, who is due to speak in Berlin. Any comments surrounding a potential rate cut will be heavily scrutinised.
More data from Eurozone today
The sale of German five-year bonds (selling at the expected negative yield) was the only notable Eurozone data release yesterday, in what was another quiet day for the bloc. The euro strengthened slightly against the dollar towards the end of the trading day, and finished around where it opened against the pound despite a slight rise in sterling in the middle of the day. The most significant release of the day was the US Federal Open Market Committee (FOMC)’s decision on interest rates.
Today sees a pick-up in activity for the Eurozone. Consumer confidence for the bloc will be released in the afternoon, but the main focus will be on European Central Banks President Draghi speech at 2pm. Any inclinations as to future monetary decisions from the European Central Bank (ECB) – whether that would be a change in interest rate or quantitative easing policy – could cause significant volatility.
Spotlight on US interest rate decision
It was quiet for US data during the day on Wednesday in anticipation to the evening’s US Federal Reserve interest rate decision which was as expected – no interest rate increase, although there does seem to have been a significant underlying current that there will be an increase by the end of this year.
Following yesterday’s important US Federal Reserve rate decision, we can look forward to the weekly unemployment claims which is expected to remain a stable figure. Existing home sales data is also out a bit later, and expected to post growth for the first time in two months.
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