Pound Sterling (GBP)
Overnight the Pound advanced significantly against several of its rivals, with its most notable gain being against the Euro. Currently trending in the region of 1.3924, the GBP/EUR exchange rate rallied to a two-month high in response to the Federal Reserve policy statement being hawkish in tone. This opened up the door for rate hawks to bring forward bets regrading a Bank of England (BoE) interest rate hike given that many analysts believe that the British central bank will not look to hike rates ahead of the Fed. However, the relative appreciation of the Pound offered some attractive selling opportunities for traders, resulting in a fractional overall depreciation on Thursday morning. Better-than-forecast Nationwide House Prices, however, slowed the downtrend as traders await Consumer Credit and Mortgage data.
Given that the EUR/USD exchange rate is negatively correlated, thanks to it being the world’s most traded currency pairing, the shared currency dived in response to speculation regarding the timing of a Fed interest rate increase. The Euro to US Dollar exchange rate halted losses on Thursday morning, however, trending in the region of 1.0940 thanks to US Dollar profit taking and the resultant USD depreciation. German labour market data produced positive results with October’s Unemployment Change showing 5,000 fewer jobless citizens, although September’s reading was negatively revised to show 1,000 newly unemployed. October’s German Unemployment Rate held at 6.5% in line with economists’ projections.
US Dollar (USD)
The Federal Open Market Committee (FOMC) opted to hold the cash rate yesterday with just one policymaker voting for an immediate hike. This was generally expected, but market focus was dominated by the statement released by policymakers given that Chairwoman Janet Yellen did not hold a press conference. The statement was revealing in what it lacked; namely the dovish tone regarding the global economic situation seen following previous meetings. Policymakers were also far more confident in the progress of the domestic economy. Futures traders have now increased bets substantially that the Fed will look to increase the benchmark interest rate in December.
Australian Dollar (AUD)
Speculation that the Federal Reserve will increase rates in December weighed on demand for high-yielding assets. The Australian Dollar cooled significantly during the Australasian session with an unexpected contraction in September’s New Home Sales oiling the slide. Less-than-ideal results from third-quarter Import and Export Price Indexes highlighted the ongoing issues with Australian trade as commodity prices remain comparatively weak. Thursday is likely to see a continuation of damp demand for the ‘Aussie’ (AUD) as gold prices tumble and stock prices fluctuate.
New Zealand Dollar (NZD)
Although somewhat overshadowed by the Fed interest rate decision, the Reserve Bank of New Zealand (RBNZ) also had a meeting to decide policy outlook. As most economists’ had predicted, the central bank opted to keep rates unchanged at this juncture, but left the door open for future easing if necessary. Much like its Oceanic neighbour, the ‘Kiwi’ (NZD) lost ground in response to Fed rate hike speculation.
Canadian Dollar (CAD)
Yesterday, crude oil prices surged after US inventory data showed that stockpiles had reduced by a greater amount than had been forecast. However, after the publication of the hawkish Fed statement, oil prices tumbled again which weighed on demand for the Canadian Dollar. The prospect of a December Fed rate hike is also bad news for the Canadian economy because a high valued US Dollar will make trade across the border less lucrative. At a time when the Bank of Canada (BOC) is flirting with the prospect of easing policy, tighter policy across the border will only widen the economic divergence between the neighbouring nations.