GBP/EUR 1.3382 (0.7472)
Risk through much of yesterday’s session remained subdued ahead of last night’s FOMC release. European equities swung between losses and gains and over all were relatively unchanged on the day. Greece however was a different story as the rout in bank shares continues, Greek bank stocks now down 44% on the week. Greek concerns continue to have little impact on the single currency as of yet, EURUSD and EURGBP both maintaining the weeks narrow range, following a month of record moves with EURGBP down almost 7.5% since December 19th, with EURUSD down close to 11.5% in the same period.
In the US stocks traded lower as the FOMC policy statement changed little, we will discuss in greater details below but the Fed have maintained their wait and see approach, but not significantly changed the interest rate horizon outlook. This led to the USD rallying against most major counterparts as diverging central bank policies continue to make USD attractive for investors. Overnight the AUD and NZD faced selling pressures, the RBNZ kept interest rates on hold but pulled back on the policy tightening bias to take a more neutral stance, rate hikes now appear to be off the table for 2015 in New Zealand.
Last night’s FOMC statement was very much “as we were”, there was a couple of subtle changes in the statement but nothing to warrant speculation that the Fed will look to change the course of interest rate hikes and at the moment they look like the only major central bank looking to raise interest rates in 2015. The Fed are playing a cautious game on this, Janet Yellen is choosing open wording and despite several FOMC members suggesting rate hikes as soon as June’15 we still remain cautious, especially with recent corporate earnings feeling the impact of a stronger USD. The FOMC statement acknowledged recent declining inflation pressures but also acknowledged that it reflected the decline in energy prices. They also felt that developments in international markets and steps taken by other central banks would reduce the downside risks to US growth.
There was little in terms of major data from Europe yesterday as the dust still settles from the weekend’s Greek election and last week’s ECB meeting. Today however we have German CPI data, the euro may well simply overlook this data point however, we have already seen the Eurozone slip into deflation and while today’s print is expected to show Germany has now followed suite with a price growth actually declining .1%. Given the size of the QE program announced last week and the expectations for deflation across the region and reaction in EUR pairs could well be limited. Consumer confidence also crosses the wires but once again the larger picture continues to be on ECB QE.