USD surges as Fed ends QE

United States Dollar:

GBP/USD - The safe haven dollar has surged against its UK counterpart as the US Federal Reserve Bank confirmed an end to its quantitative easing programme, delivering more hawkish comments regarding the US jobs market. In its October announcement, the Federal Open Markets Committee stated, "Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing." They then went on to say, "there has been a substantial improvement in the outlook for the labor market" and, " the Committee continues to see sufficient underlying strength in the broader economy". Considering recent US data has been viewed as disappointing, some economists predicted the Fed would continue QE past this month. The fact they have decided to end the programme fuels expectation of an interest rate rise by mid-2015. This is in stark contrast to UK rate expectations, as Tuesday’s comments from Bank of England deputy governor, Sir Jon Cunliffe, suggest the bank will keep rates on hold for "longer than previously thought". Market movements were understandably cautious ahead of the Fed statement, with GBP/USD trading a 50 pip range between 1.6105 and 1.6155. Following the news the pair fell over a cent before holding just above the 1.60 level, but overnight selling of the pound has continued and this level has been breached. Today's docket is clear for the UK but further economic data from the US, in the form of third quarter GDP, jobless claims and personal consumption expenditure, will more than likely see further volatility. We open today with GBP/USD at 1.5970. We expect a range today in the GBP/USD rate of 1.5950 to 1.6030.

Euro:

GBP/EUR experienced a relatively quiet day of trading as news from the US dominated proceedings. The pair began the day by drifting lower as UK lending data for September missed forecasts. Mortgage approvals posted 61.267K vs 62.250K exp, while net lending to individuals fell from the previous month’s figure of £3.2B to £2.7B. The rest of the day saw sterling trading around 1.2650 before returning to its opening price of 1.2665. With no UK data, it will be up to German unemployment numbers and readings from the eurozone economic sentiment surveys to provide today’s direction. We open today with GBP/EUR at 1.2705. EUR/USD also fell heavily following the Fed’s announcement to end its six year stimulus programme. Having spent much of the day above 1.2750, the euro fell over a cent to 1.2645 against its US counterpart. In a statement the FOMC sighted improved Labor market conditions, along with broader economic strength, as the primary reasons behind its decision. While the committee reiterated its stance on keeping interest rates low for a considerable time, the move has heightened expectation of a rate rise by mid-2015. Looking ahead to today, further volatility is likely with the release of Germany’s October unemployment rate and CPI numbers plus US Q3 GDP, jobless claims and personal consumption. We open today with EUR/USD at 1.2575. We expect a range today in the GBP/EUR rate of 1.2665 to 1.2745. 

Aussie and Kiwi Dollars:

The commodity linked Aussie and Kiwi dollars fared little better as the FOMC decision saw the greenback gain across the board. AUD/USD fell to 0.8770 and NZD/USD dropped to 0.7835. While both currencies have fallen, the NZD experienced further downsides following the RBNZ interest rate decision and accompanying statement. As expected, the RBNZ kept rates on hold at 3.5% but went on state that they see the current level of NZD as unjustified and unsustainable, and we should expect further falls for New Zealand dollar. The comments sent NZD/USD lower still to 0.7775 whilst GBP/NZD peaked to 2.0565. We open today with GBP/AUD at 1.8185 and GBP/NZD at 2.0480. We expect a range today in the GBP/AUD rate of 1.8135 to 1.8250 We expect a range today in the GBP/NZD rate of 2.0425 to 2.0550.

Data releases for the next 24 hours:

AUD: Private Sector Credit (YoY & MoM) (Sep), Producer Price Index (YoY & QoQ) (Q3)

EUR: German unemployment rate and unemployment change (Oct), eurozone Consumer Confidence, Business Climate, Economic Sentiment Indicator, Industrial Confidence and Services Sentiment (Oct), German Consumer Price Index (YoY & MoM) (Oct)

GBP: No Data

NZD: Building Permits (MoM) (Sep), M3 Money Supply (YoY) (Sep)

USD: Gross Domestic Product Annualized (Q3), Gross Domestic Product Price Index (Q3), Initial and Continuing Jobless Claims, Personal Consumption Expenditure Prices (QoQ) (Q3), Core Personal Consumption Expenditures (QoQ) (Q3)