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All set for December liftoff?

All set for December liftoff?

After Monday’s big dollar-bullish move, the foreign exchange market has been relatively mixed since, mirroring the uncertainty traders are feeling toward future Federal Reserve policy. Yesterday the Fed’s Lockhart affirmed his view that the FOMC should begin the process of normalisation with conditions now relatively settled. The Fed’s Lacker said “The longer we wait the more aggressively we’ll have to move”. The release of surprisingly robust jobs data this month has provided a basis for the Fed to finally implement the 2015 hike it desires. However, with a month until that decision has to be made, US economic data and Fed speeches will be more deeply analysed than ever.

Last night’s minutes from the FOMC appeared to firmly back a rate hike in December although in typical Fed fashion, left plenty of room for manoeuvre should it change its mind. While this may not be as straightforward a decision as it has been in the past, there is clearly a majority that are willing to proceed. The fact that we’ve had a very good Non Farm Payrolls report since the original meeting can only have strengthened their position. This morning GBPUSD opened up at 1.5285, an increase on yesterday’s close of 1.5221.

Attention will now be focused on the UK and the release of the latest retail sales figures for October. A surge in sales in September is expected to be followed by a small decline last month of 0.5%. Consumer spending remains strong in the UK and is expected to be 4.2% higher than a year earlier with core sales up 3.9%. With that in mind, there should be little concern with volatile fluctuations in the month on month data.

Following a near empty day of data for Europe the markets are poised for ECB Monetary Policy Minutes released this afternoon. The Euro has steadily been weakening against both Sterling and the Dollar as there seems to be a heightened market expectation for Draghi to crank up the current QE program in December. The EURUSD rate seems be dictated by the decision and rhetoric of the ECB of late and as ECB policy further diverges from the FED’s we could see the rate fall further.  

Data to watch: 9.30am UK Retail Sales. 12.30pm Euro ECB Monetary Policy Meeting minutes. 1.30pm US Initial Jobless Claims. 3pm US Conference Board Leading Indicator & Philadelphia Fed Manufacturing Survey.

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