Exchange Rates Today: Pound Sterling, US Dollar and Euro Gear up for Today's US FED Event Risk
The state of the key wholesale exchange rates in early afternoon:
- The Euro Dollar exchange rate is 0.11 pct higher at 1.3344.
- The Pound Dollar exchange rate is 0.46 pct higher at 1.7082.
- The Pound Australian Dollar exchange rate is 0.46 pct higher at 17081.
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Sterling strong, currency markets calm ahead of FOMC storm
The British Pound Sterling is without doubt the only real source of excitement on the markets today.
Expect it all to kick off at 19:00 tonight though.
Peter Rosenstreich at Swissquote says:
"We are only a few hours away from the Fed's QE decision announcement and the Bernanke press conference. The broad market view on today's Fed meeting is beginning to solidify. Gauging the reaction in the rate market, there is are general expectations that Bernanke will deliver a gentle cut to asset purchases of between $10bn to $15bn and restrained (dovish) tone in the accompanying press conference.
"With the Fed missing its inflation and growth targets, it’s hard to see members voting for anything but a watered down first move. It seems unlikely that Bernanke will give the markets anything more aggressive, within his press conference, Chairman Bernanke should rigorously stress that interest rates will continue to be anchored well beyond asset purchase program ends (short-term rates near zero for an extended period)."
The US Dollar: What is Dollar Negative and What is Dollar Positive?
With only a few hours to go before the FOMC rate decision, the U.S. dollar is trading quietly mixed against all of the major currencies.
Camilla Sutton at Scotiabank give us her views on how the US Dollar could react to today's FOMC event:
USD positive scenarios include:
"Our base case (defined above) as the market will view it as the first step in tighter policy and it will confirm the shift in markets since the July 31st meeting (including the 25bpts jump in
10‐year yields; the 20bpts steepening in the yield curve and the 15bpts climb in mortgage rates).
"Other potential USD positive surprises would be: a larger tapering; a less dovish tone from the Chair; more hawkish dissents or more positive forecasts than we expect."
USD negative scenarios include:
"No tapering, a lowering of the unemployment threshold or introduction of lower bound inflation threshold, a large downgrade to the growth outlook, a dovish dissent.
"Realistically theFed will be cautious to maintain its tone that monetary policy in the US continues to be highly accommodative and this will limit USD gains."
The Pound Sterling: BoE Minutes Cautiously Optimistic
Shaun Osborne at TD Securities says:
"The BoE minutes were the highlight macro development overnight, with a more optimistic tone helping to boost Sterling to the top of the performance rankings among the G10 currencies.
"The MPC acknowledged the better UK activity lately and upgraded their growth outlook for the remainder of the year, but perhaps more importantly they did not make any attempt to push back on the recent rise in Gilt yields. 10-yr Gilts are now testing 3.0% again as a result.
"UK-US short term yield spreads are not as tightly correlated with the spot rate in GBP/USD, but the sharp widening of in the spread overnight certainly helps support a higher GBP/USD. All eyes now shift to the Fed for the next sharp move."
The Euro: Defying gravity?
Shaun Osborne at TD Securities says:
"We continue to expect EUR/USD to track lower through the balance of the year as the Fed’s reduced accommodation begins to contrast an ECB that has reiterated policy rates will be at or lower than current levels.
"Today’s market reaction nevertheless, has the potential to see the pair test new highs if the Fed comes across more dovishly via a tapering of less than 10bn, more stringent forward guidance, and/or a still dovish outlook on 2016. If that is the case, EUR/USD should look to test the August highs near 1.3450."