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Currency markets found themselves in a spin this week following dramatic action from the Fed at their policy meeting. Although they made no change to the base rate of interest, the change in tone of their language and revisions to their economic projections sparked a frenzy.

Having previously described their position as “patiently monitoring conditions”, they removed the patient, and it is now a case of when they will raise their base rate, some analysts think as soon as June. Normally, this would cause the Greenback to strengthen, sending GBPUSD down, but instead we saw the reverse.

The reason for this was the alteration in their future projections. They lowered their 2015 & 2016 expectations of interest rate, suggesting that there would only be one hike this year. We also saw reductions in the inflation and growth targets, further removing pressure for a hike. After the initial reaction to the news from the central bank, markets started to retrace their previous moves, resulting in a 6-cent swing on Cable, and Thursday saw the cross experience its largest daily fall in 5 years.

It wasn’t an entirely silent week from the Bank of England either, as they published the minutes of their most recent meeting which showed that although they voted 9-0 in favour of a rate hold, two members felt that the issue was finely balanced, and the deflationary pressures could lead to a further rate cut.

Thursday saw the Bank of England’s chief economist Andy Haldane expand further that he viewed the threat of deflation as serious threat. He said “The optimal path for interest rates would involve them being cut in the short-run towards zero for around a year, before then roughly following the market yield curve.” On the back of these comments, Sterling came under pressure, losing ground against all the majors.

It has also been a poor week for Euro buyers, after the rate reached a 9-year high last week, we have fallen over four cents, and we cannot be certain whether this is a retracement blip or the start of a new trend in the lead up to the general election. Wednesday’s budget (and that of the Lib-Dems on Thursday) passed without incident as the Chancellor set out his five-year masterplan. It was a slight embarrassment for the opposition that after leader Ed Miliband attacked the budget on Wednesday afternoon, only for shadow-Chancellor Ed Balls to admit on Thursday morning that if elected, he would not reverse any of it.

Looking ahead, Greece is coming back into focus. Things looked ugly as Germany demanded that the promised reforms be enacted, and the Greeks responded by asking Germany to make good on their world war reparations. Other creditors have since joined the brigade calling for action, and this issue will clearly rumble on for some time.

We have plenty of statements from key policymakers, with a member of the Federal Open Market Committee speaking each day, culminating in Chair Janet Yellen on Friday, and from the Eurozone, we hear from ECB President Mario Draghi on Monday afternoon. Given how much the market moved after the Fed meeting last week, comments from all sources will be closely monitored for clues as to future policy, and we can expect to see significant volatility off the back of anything unexpected.

Looking at more fundamental data, we see PMI data from the Eurozone expected at 51.6 for Manufacturing, and 53.9 for Services, suggesting the Eurozone recovery is slow, but existent. More attention will be paid to the UK’s CPI inflation number on Tuesday, set to drop further to around 0.1% from 0.3%. If it does drop into negative territory, we could well see Sterling suffer. US inflation comes out in the afternoon, expected around the same 0.1% monthly.

Thursday sees UK retail sales data, looking for a monthly increase after the previous contraction. Another contraction could be taken as a sign of poor consumer confidence, which could have a negative effect on Sterling. Friday sees attention shift back to the US, when we see the final GDP reading for Q4 2014, expected to show a slight increase on previous estimates around the 2.4% mark.

With the political uncertainty of a general election around the corner, the Pound is fragile. Whilst the economic recovery seems well underway, Sterling remains vulnerable as a currency against the other majors. This is an excellent time to make use of market orders to maximise your buying power, please get in touch with your account manager to look at your options.

Matthew Harris of Cambridge Global Payments

Week to Date




Oil (Brent)


Week Ahead

MON 23
EUR: Statement from Mario Draghi
TUE 24
EUR: Services & Manufacturing PMI

GBP: CPI Inflation

USD: CPI Inflation
WED 25
GBP: Financial Policy Committee Statement

THU 26
GBP: UK Retail Sales

USD: Unemployment Claims

FRI 27
USD: Janet Yellen Speaks

USD: GDP Q4 2014

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