Daily currency report
Overview
The US dollar surged across the board and is already adding to those gains after minutes from the Federal Reserve’s latest policy meeting suggested the Federal Reserve will bring its quantitative easing scheme to an end sooner than expected. The somewhat hawkish notes come in front of high-profile US non-farm payrolls and unemployment figures. The Federal Reserve recently tied its policy directly to the level of US unemployment, and hopeful figures could encourage more investors to scale-back on prospects the Federal Reserve will continue to stimulate the US economy from months to come. Cable also fell sharply following weak UK economic data, although key PMI survey covering Britain’s services sector could offer the pound some support.
Sterling
Cable collapsed and the pound is facing further pressure after weak UK economic data gave sterling little to defend itself against a broadly stronger US dollar. PMI survey covering Britain’s construction sector showed a bigger than expected contraction in December, and followed an earlier report from Nationwide indicating a fall in UK house prices. Compounding the pound’s move lower were notes from the Federal Reserve hinting at tighter USmonetary policy in the months ahead.
US dollar
The US dollar gained rapidly and opens near six-week highs on a trade-weighted basis after minutes from the Federal Reserve’s earlier policy meeting indicated an early finish to the central bank’s quantitative easing programme. Notes displayed a spilt Federal Reserve, with some policymakers in favour of reducing bond purchases and winding down the scheme in 2013. With Federal Reserve policy now specifically tied to the US unemployment rate, all eyes will be on US non-farm payrolls and unemployment data. Markets are expecting to see a gain in employment, and the country’s unemployment rate to hold steady in December.
Euro
The euro was sent sharply lower against its main trading rivals and has continued to suffer against an advancing US dollar as investors remain concerned about fiscal policy negotiations in the US. Hints about tighter US monetary policy also pushed the US dollar higher, while eurozone inflation figures are likely to reinforce expectations the European Central Bank will consider an interest rate cut at its meeting. The single currency has fallen to three-week lows against its US counterpart, and weak inflation data alongside strong unemployment figures from the US could extend this decline further.