End to QE strengthens the US dollar

After a very eventful and volatile Wednesday evening, the pound lost significant ground on the back of the FOMC statement - the Federal Reserve decided to keep the interest rate at historically low levels and gave no indication that this is likely to change. The market fell from above 1.6150 interbank to lows of 1.5963(IB). There was fear that the lack of fundamental data out of the United Kingdom yesterday may hold the pound back from recovering and holding above the psychological 1.60 handle. We have to look into next week before there is any higher tier data to lend a helping hand. On Thursday, the Bank of England will discuss the eagerly awaited interest rate decision and levels of quantitative easing. It is now considered that the Bank of England is falling behind in the race against the Fed to raise interest rates. The pound did claw back some of its losses against the dollar as the rate stabilised back above the 1.60 handle for the majority of the day. The pound is set for a fourth consecutive monthly loss against the dollar; however, we did see the pound gain against the ever resilient euro. As we have noticed in the past week, resistance is holding firm at 1.27(IB) and the pound is continuing to struggle to break through this handle. It did, however, break through this level overnight and is currently holding just above 1.27, the pound retreated against the Greenback falling back beneath 1.60.

There was an array of tier one data out of Germany yesterday with unemployment change figures giving market participants a shock as readings showed a -22k figure against the consensus of 5k, published by the German Statistics Office. The statistics office also released the unemployment rate as a percentage which met consensus with readings of 6.7% - the same result they have achieved every month since Feb this year. Later in the afternoon we saw key inflation data released in the form of consumer price index, both year-on-year and month-on-month. Year-on-year figures fell just short of consensus reading 0.8% against 0.9% whereas month-on-month readings were more bearish and fell further short of the mark with readings of -0.3% against the -0.1% consensus. Both these figures highlight the current European struggles. Finally, to cap off a poor day for Germany and Europe as whole, we saw negative readings when Destatis released the harmonised index of consumer prices year-on-year which gives an insight into how inflation within Germany affects the rest of the eurozone. The releases showed a reading of 0.7% against the 0.9% consensus. Despite the negative readings the euro managed to hold firm against its peers.

Stateside, US stocks rose while gold sank after data showed that the US economy expanded more than forecast. Treasuries rose with bunds as German price growth unexpectedly slowed, adding to deflationary concerns. Fewer Americans filed applications for unemployment benefits over the past month than at any time in more than 14 years; a sure-fire sign that the US job market is gaining pace. The four-week average of jobless claims, a less-volatile measure than the weekly figure, fell to 281,000 in the period ending October 25th, which is the lowest since May 2000, a figure that will no doubt please Fed Chair, Janet Yellen, who pays particular attention to these figures much like her predecessor. Cable can’t seem to catch a break and it’s a case of one step forward and two steps back. The dollar enjoyed a decent move on the back of the FOMC results yesterday evening opening the trading session at 1.5953. The dollar gave some of its gains trading at 1.6016 by 5pm (London time) before retreating overnight.