FOMC language changes but statement ultimately fails to surprise

United States Dollar:

GBP/USD ticked higher yesterday morning, reaching up to 1.5219. Investors were busily re-positioning ahead of the FOMC announcement that evening and as the afternoon progressed GBP/USD eventually settled lower. Before the main event, attention turned to a speech by BoE governor Mark Carney over in Dublin. He didn’t say anything to take markets by surprise and instead chose to focus on developments in the eurozone, saying that the “European monetary union will not be complete until it builds mechanisms to share fiscal sovereignty”. It wasn’t much of a day for surprises (which is a relief to many after what’s happened over the last couple of weeks) as the FOMC statement once again failed to indicate whether interest rates will be raised this year. The Fed is instead continuing to take a wait-and-see approach. However, the hawks are likely to be buoyed by various changes in language in the statement compared to the last one as the Fed removed the phrase “considerable time” entirely and made reference to “strong jobs gains” rather than “solid job gains”. On the flip side, the doves will be pointing to the Fed’s concerns for the rate of inflation which read “inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices”. It went on to say “inflation is anticipated to decline further in the near term”. Despite highlighting some concerns about inflation the dollar has made steady gains over the last 12 hours and GBP/USD opens this morning at 1.5115.

We expect a range today in the GBP/USD rate of 1.5050 to 1.5180.

Euro:

Jitters over Greece continued on Wednesday, weighing on the single currency throughout the morning’s session despite the new Greek PM saying that Greece will not default on its debts. The PM went on to say that “we won't get into a mutually destructive clash but we will not continue a policy of subjection”. EUR/USD continued to slide throughout the day as the FOMC announcement came and went and is dropping further this morning in reaction to some weaker than expected regional German inflation data. It is also a reaction in part to further comments by the ECB’s Benoit Coeure, who has been reported as saying that quantitative easing will only end once inflation starts heading back towards 2%. EUR/USD opens this morning at 1.1300 whilst GBP/EUR continues to advance and trades at 1.3385, having traded above the 1.34 figure earlier on this morning.

We expect a range today in the GBP/EUR rate of 1.3320 to 1.3420.

Aussie and Kiwi Dollars:

Both AUD/USD and NZD/USD have been knocked lower over the last 24 hours; this after the RBNZ announced last night that it would be leaving interest rates unchanged. Moreover, the sell-off materialised as the central bank indicated that it would be keeping rates on hold for some time in the face of a falling outlook on inflation and growth concerns. The central bank also took the opportunity to talk the kiwi lower saying “we believe the exchange rate remains unjustified in terms of current economic conditions, particularly export prices, and unsustainable in terms of New Zealand’s long-term economic fundamentals.” Following this statement, hot on the heels of the Bank of Canada cutting interest rates last week, there are growing expectations for the Reserve Bank of Australia to cut interest rates next week. In that respect, the RBNZ’s comments have weighed heavily on the aussie dollar and AUD/USD has fallen from an overnight high of .8010 to open this morning at .7810. NZD/USD has fallen from .7494 to trade at .7290 this morning.

We expect a range today in the GBP/AUD rate of 1.9280 to 1.9460.

We expect a range today in the GBP/NZD rate of 2.0620 to 2.0840.