QE ends, next stop rate rises

The FOMC decision last night gave us the expected historic end to QE III which really should have come as no surprise however the dollar reacted as if it was. Relatively hawkish comments about the labour market caused USD to spike strongly as the market readjusted for the next move from the Fed, which is now going to be interest rate hikes even if they might not come well into the latter part of 2015. The dollar strength continued overnight and into this morning with USDJPY back above 109.00, Cable below 1.6000 and EURUSD below 1.2600.

Today sees German unemployment data released in the morning closely followed by Eurozone consumer confidence and other business and economic sentiment data. Whilst these will be closely watched it’s tomorrow’s Eurozone inflation data that could lead to a bigger move in the euro as this is expected to rise only slightly. Although partially reversed following FOMC last night, the euro has been a beneficiary of this month’s dollar weakness having rallied strongly from the 1.2500 nearly hitting 1.2900 at one stage but a continuation of EURUSD strength looks like it could be hard to come by. The Eurozone’s current account surplus is being run down as funds slowly flow out of the economic area and Draghi’s got a long way to go before he gets the ECB’s balance sheet back to 2012 levels. This should all equal a weaker euro, but as with all things in the financial markets, things are rarely straight forward.

Later tonight the Yen could see some action as Japanese CPI data is released ahead of the BOJ monetary policy announcement. The market has been raising the chances of further easing by the BOJ but for it to come at this meeting seems premature. USDJPY’s move back above 109.00 shows dollar bulls are looking for a retest of 110.00.

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