On Wednesday night the Federal Reserve announced that it would be maintaining its relaxed stance on interest rates. The US Dollar fell sharply against a basket of currencies which in turn saw the Euro rally to a 17 month high of $1.4881. Sterling was able to capitalise further against the Dollar after rapid gains seen in the previous week, the Pound remains trading around 1.66 at the end of Thursday’s London trading session.
Ben Bernanke, Fed Chairman, said that the central bank had no rate hikes scheduled in the short term and also said that the bond buying programme will come to an end in June as planned so further Dollar weakness is to be expected.
The US GDP figures for the first quarter were released at midday yesterday showing an even larger contraction that anticipated. Expected figures were a mere 2.0% however actual figures were revised down to 1.8% which has done little to support the Dollar.
The highly awaited first quarter GDP figures for the UK were released on Wednesday which showed that the economy grew by 0.5%. This was just about inline the expected figures but there was market talk that growth could have been less than that. Initially Sterling jumped 80 pips against the weak US dollar and managed to peak at 1.13 against the robust Euro. The upward move from the Pound was short lived as trading returned to more suitable levels by late afternoon.
There are huge concerns that the Fed will be the last major bank to increase interest rates and this is the major downfall of the Dollar. With expectations set high for the ECB’s second rate rise by the end of the summer the $1.50 level is easily on target for this pair. The Bank of England has a relaxed approach on the interest rate rises as well which is the reason for it lagging against the Pound.
Today the Pound is up against most of the major currencies, trading will be slow and range bound due to the double bank holidays in the UK and the Royal Wedding is due to be broadcast and 11:00 GMT+1. Sterling is up over 0.3% against the US Dollar following the poor GDP figures for the US yesterday.
Next week is short with only 4 trading days in the UK, however the week is plagued with Euro zone data which has been good recently. The Bank of England will be gathering to discuss the interest rates which are unlikely to change but most importantly the ECB interest rate announcement is due on Thursday which is guaranteed to spur more speculation for rises.
