USD Weakens Again
Last night we saw another huge move on GBPUSD as it reached a high of 1.6820 before falling back again. GBP had been strengthening against the Dollar all day and the move gained even more momentum after the release of the March FOMC meeting minutes.
The sentiment which seemed to cause the shift was that there will not be any rate hikes from the Fed until the second half of 2015. The main points coming out of the meeting were as follows; the outlook for economic activity had not really changed since the December meeting. There had been further improvement in labour market conditions and most market indicators were pointing to further gains. Inflation had remained under the Fed’s 2% objective although it was expected to return to 2% over the next few years. Financial conditions are generally consistent with the Fed’s policy intentions.
News out of the Eurozone was as shocking as ever. Yet again, it has been reported by a member of the ECB that if this period of low inflation persists for too long it will consider unconventional tools to try to fix it. Indeed, some people are going further by saying Mario Draghi will act within the next 2 months as he has unanimous backing to bring in the unconventional measures. The only fly in this particular ointment seems to be that people are none the wiser as to what these unconventional measures will actually be.
In the UK, it’s rates day as Mark Carney will undoubtedly announce that interest rates are to be kept on hold. The UK economy seems to be coming along quite nicely at the moment and this is mirrored in the relative strength of the Pound. The only slight worry is the over-reliance on the property market but the supply/demand equilibrium seems to sit comfortably with policy makers. Indeed, even if a housing bubble is forming it would be regulatory policy makers as opposed to monetary policy makers who would need to step in to govern this.