Different directions for EU and US
Friday showed that divergence in monetary policy between the ECB and Federal Reserve is alive and well, indeed it is a theme that is likely to continue in 2015. Two senior ECB officials expressed their concern about negative inflation and their determination to use all possible monetary tools, including quantitative easing, to fight the trend. On the other hand, three Fed presidents indicated that the FOMC (Federal Open Market Committee) intends to begin ‘normalizing policy’ in the coming year even if inflation hasn’t returned to their 2% target, meaning raising interest rates. This saw EUR/USD fall below 1.2250, the lowest for 3 years.
Of course this week will be pretty quiet on the economic news front with the exception of tomorrow/Tuesday when we get the final GDP figures for Q3 from several countries. In France and the UK, the final Q3 GDP data are expected to confirm the preliminary growth figures. In the US, the 3rd estimate of GDP for Q3 is expected to show that the US economy expanded at a faster pace than initially estimated.
Elsewhere recent focus on the oil price will likely cause more volatility for the oil-related currencies (AUD, CAD and NOK).
Although we at Currency UK are in full swing until 12.30pm on Christmas Eve (Wednesday), in the coming two weeks the FX market will have far fewer participants than normal. Despite the quieter economic calendar, this reduced activity can mean that volatility can increase.