The US Federal Reserve’s FOMC yesterday left interest rates on hold as expected and cited the notable improvement in the unemployment rate in recent months, also as forecast. Household spending and business fixed investment continued to advance, but they warned that inflation concerns have increased due to energy prices but they still intend to keep interest rates low through 2014 as previously stated.
All this came as no surprise to the markets, but they took a certain joy from the more upbeat report and we’ve seen a surge in the US $ as risk appetite returns for the moment at least. The biggest losers have been the Euro, down to lows of 1.3030 before finding the usual Asian buyer overnight, and the Yen which has broken up through strong technical resistance at 83.00, with many forecasters now looking for as move to 90.00 this year.
The Pound strengthened on talk that the UK Chancellor George Osborne will unveil a 100-year gilt alongside next week’s budget. The UK is already borrowing for 50-years at a respectable 3.22% and they seem keen to capitalize on this. Japan also issues this length of bond and there always seems to be demand from insurance companies.
The expected overseas uptake has given the Pound a boost across the board with GBPUSD rising sharply at first before falling back after the FOMC statement, but EURGBP came lower again to 0.8294 overnight (GBPEUR up to 1.2058) until the Euro buyers elsewhere put the brakes on. There is also a pivot line around 0.8295 from the previous move up a month ago and this has given further support.
GBPAUD has tested higher at 1.5000 and GBPCHF has climbed above 1.4550 exacerbated by good selling interest in the Swiss Franc with EURCHF and CHF both breaking higher after days/weeks going nowhere.
However, in the last few minutes we’ve seen a small GBP sell-off on profit taking following weaker than expected UK employment data with claimant count change showing a rise of 7200 versus forecasts of 6000 with the unemployment rate coming in at 8.4%. GBPUSD has fallen to test support at 1.5700 with Middle East sovereign names being seen selling and EURGBP is up to 0.8320 (1.2019).
Stocks are generally firmer on the more positive US scenario but Gold has succumbed to this risk appetite, and failure to break through the $1725 resistance level, falling all the way back to test key support at $1650. This level held before and it remains to be seen whether it will again this time.
Some more key data out this morning from the Eurozone will keep the pot boiling nicely and this afternoon we have Fed Chairman Bernanke stepping up to the rostrum to keep traders on their toes.
All in all, a lot more going on out there at the moment but we’re still not seeing any major trend changes.
Right then, back to the Cheltenham race-card………..!
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