Cautious tone dominated proceedings yesterday

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Foenix Partners

Foenix Partners

A cautious tone dominated proceedings yesterday as the previous evening’s FOMC announcement brought a jump in volatility across the currency markets despite a lack of clear directional moves. Early dollar weakness brought on by the date of the first rate hike being delayed then turned into dollar strength as focus shifted to the Fed’s emphasis on improving economic conditions, helped by initial jobless claims declining to a 15-year low (265k vs 300k forecasts). As a result, GBPUSD fell away from weekly highs to within range of the 1.5000 psychological support despite the euro showing genuine resilience to post gains in EURUSD and push GBPEUR back below 1.3300. Part of this was confirmation late in the session that the EU won support from Greece to extend sanctions against Russia – the position of the incoming leftist government had been unknown and their agreement helped ease market concerns in anticipation of looming bailout negotiations. The Fed this week confirmed they would be “patient” in assessing US readiness for higher interest rates and today’s data will be vital in determining just to what extent. Figures for wage growth will be closely watched, but dominating the data set is the advance Q4 GDP figure. The IMF recently upgraded 2015 growth forecasts for the US – notably the only positive revision in their latest global outlook – and polls point to a 3.0% annualised figure. Preceding the US releases are eurozone inflation and confirmation of the bloc’s unemployment rate, which could contrast sharply with US data. Overall, it will grant investors a more complete picture that takes into account the Fed statement and up-to-date growth figures, which will inevitably drive choppy price action into the close as month-end repatriations will also play a part.

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