Risk Assets and EUR Exchange Rates Undermined as USD Strengthens Following Upbeat Fed Policy Outlook

GBP Left Weak despite Consumer Confidence Uptick as Market Demand Shifts to Risk

The Pound was able to keep hold of minor gains versus many of its peers yesterday. A surprise rise in the GfK consumer confidence index for January from -13 to -9 provided some support for Sterling.

The January Markit UK manufacturing PMI is set for release this morning. Forecasts are for a slight rise on the already strong score, so GBP could receive a boost from the data if it meets or exceeds predictions.

Strong Eurozone Inflation Data Undermines GBP/EUR – Until US Fed Announcement

The GBP/EUR exchange rate experienced an early-morning slump yesterday, then spent the rest of the day trying to recover. German unemployment data for January showed a greater-than-expected drop in the number of jobless, while Eurozone CPI figures showed the expected uptick in core inflation.

The Pound was able to recover against the Euro later in the evening, following the policy announcements from the US Federal Reserve.

The Eurozone economic data calendar is fairly sparse today, although the Euro could receive a boost from the finalised January Markit manufacturing PMIs, which are likely to highlight the strength of the Eurozone economy.

European Central Bank (ECB) Chief Economist Peter Praet is due to give a speech in Brussels, so there could be some comments regarding the monetary policy outlook that cause Euro jitters.

Upbeat Federal Reserve Meeting Fails to Leech GBP/USD Exchange Rate Gains

The US Dollar was weak during the day as markets awaited the Federal Reserve’s latest decision on interest rates. GBP/USD managed to continue its advance even after the Fed announced that inflation was likely to continue rising this year and hinted that there may need to be more than the three hikes predicted last year. Interest rates were left unchanged.

The US ISM manufacturing and employment indices are set for release today. While the manufacturing index is forecast to weaken, even if it meets the expected score of 58.6 this still represents an impressive rate of growth for the sector, so USD may not be too perturbed.

GBP/CAD Exchange Rate Continues Advance despite Strong Canadian GDP Figures

Even above-forecast Canadian GDP figures for November couldn’t stop GBP/CAD from advancing during the course of yesterday’s trading. The Canadian economy grew 0.4% quarter-on-quarter as expected and showed a surprise uptick in annualised growth to 3.5% year-on-year.

A manufacturing PMI from the Royal Bank of Canada could cause some volatility for the GBP/CAD exchange rate

Australian Inflation Disappointment Keeps GBP/AUD in Positive Territory

GBP/AUD gained yesterday, with the Australian Dollar weakened by the double-whammy of worse-than-expected inflation data and the Federal Reserve’s confident outlook. Consumer price growth in the fourth-quarter remained at 0.6% quarter-on-quarter and rose to 1.9% year-on-year; in both cases missing forecasts by ten basis points.

The day’s Australian data has already been released, although the key question regarding the outlook for the GBP/AUD exchange rate could be whether or not markets have gotten over the weak inflation data released yesterday.

Growing Risk Appetite Causes Headache for GBP/NZD Exchange Rates

GBP/NZD weakened at the start of yesterday’s session and took most of the day to break back above opening levels. The New Zealand Dollar was the risk asset of choice for markets yesterday, due to the poor Australian data and anticipation ahead of Canada’s growth figures.

As well as getting caught up in the volatility from the latest US data, the New Zealand Dollar could see movement during tonight’s Australasian session in response to the ANZ consumer confidence index for January or the December building permits and net migration figures.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron