Market News & Insights
25 February 2015

Patience is a Virtue

EUR/USD 1.1364
GBP/USD 1.5519
GBP/EUR 1.3660 (0.7320)
EUR/CHF 1.0788
GBP/CHF 1.4730
GBP/AUD 1.9671

Fed Chair Janet Yellen testified before Congress yesterday afternoon where she yet again dodged giving a definite starting date for the awaited interest rate hike. She appeared to be in her usual dovish mood when questioned on giving a guidance around the timing of a potential hike. Yellen indicated that an interest rate hike is “unlikely” to result from “at least the next couple of [Federal Open Market Committee] meetings.” This note stuck a similar cord to last month’s minutes where she called for “patients” on this topic.

Our regular readers will be all too aware of our cautionary view on the US data of late, which has begun to fall short of analyst’s expectations. While Yellen acknowledged that there had been a somewhat slowdown in some areas of the economy, the one area of concern noted however was the stagnant wage growth. This issue going forward will be a real thorn in the side of any potential interest hikes, as wages obviously play a big part of inflation. This figure along with the unemployment number will be major data releases going forward. We saw the dollar fall against a basket of currencies on the back of Yellen’s speech, but if we see US jobs data surprise to the upside next week, we could see these gains reversed against the greenback.

Yesterday we also had some economic data from the US, the major release of the day saw US consumer confidence fall in February, coming in at 96.4 and below analyst expectation of 99.5 expected. This is coming off the January figure of 102.9 which was the highest reading since August 2007. We have more data due this afternoon with Yellen back on the hill testifying where we’ll wait and see if she strikes a more hawkish note here, along with mortgage applications and new home sales.

Whilst the euro and US Dollar have been capturing the majority of headlines this week, one should not ignore the performance of the pound. On Monday, EURGBP yet again hit fresh seven year plus lows in early trading at .7317 (GBPEUR high of 1.3666). In addition, GBPUSD finally broke out on the topside of its recent range which had continually faced strong resistance and tested the 1.5460 mark on a number of occasions in the past week or so. Already this morning, the cable currency pair has broken through the 1.55 mark.

Moving on from a rear view analysis to a more forward looking one, looking ahead as we highlighted on Monday, there is some key economic data releases to keep an eye on this week. The highlight is obviously the above discussed testimony of Fed Chair Yellen but her ECB equivalent Mario Draghi is also before the European Parliament later this afternoon. The key data points though kick off tomorrow with German Unemployment out early in the morning followed UK GDP at 9.30am. These will then be followed by US CPI and Durable Goods Orders for January at lunchtime. Friday then follows up with German CPI data and US GDP figures. So all in all, we have the makings of an interesting finish to the week and in fact the month end.