Forex snapshot

GBP/USD has drifted lower from the temporary gains it enjoyed on the back of the Federal Reserve minutes. Meanwhile, EUR/USD is pulled lower by German PMI reports.

Pound and dollar currency
Source: Bloomberg

Pound cools post-Fed minutes

Sterling spiked last night on the back of the Fed minutes but the currency pair only spent a brief moment above $1.57. In overnight trading, the pound was stuck in the tight range of $1.5670-$1.5680. However, it has now broken out of that range to the downside, but sterling can’t keep relying on a weak US dollar for a bounce of its own.

The Fed minutes were much of the same; it was plain sailing for putting an end to quantitative easing but there was some division over what language would be used in reference to how long interest rates would remain at all-time lows. In the end, ‘considerable time’ prevailed but the fact that some members wanted to ditch that phrase is mildly hawkish, and this will keep sterling on its toes.

Yesterday the Bank of England revealed the minutes from the latest meeting. The breakdown was as follows: seven were in favour of keeping rates on hold and only two were looking to raise rates, which met the market expectations. As I stated yesterday, traders aren’t expecting a move away from rock bottom rates until well into next year, which will keep the pound under the cosh.

The UK will announce retail sales and CBI industrial orders expectations at 9.30am and 11am (London time). The consensus is for a reading of 0.4% and -3 respectively. Inflation in the UK recently ticked up to 1.3% from 1.2%, which suggests an increase in consumer appetite, and this could nudge sterling higher.

To the downside, the first target is $1.56. If the November low of $1.5592 is punctured then traders will look to $1.55. To the upside, $1.57 is the immediate level to watch. Then, the 200-hour moving average of $1.5746 and beyond that $1.58 will be in sight.

GBP/USD chart

Euro flat post-Fed minutes

The single currency is broadly unchanged since the Fed minutes last night. The lack of nothing new from the Fed last night ensured the single currency traded within a tight range overnight. The release of French data this morning provided a much needed injection of volatility. The manufacturing figure missed estimates (47.6 vs 48.9 expected) but traders latched onto the services report which came in at 48.8, an increase from 48.3 in October. Even though neither number was particularly impressive, the single currency moved higher on the back of it.

The German manufacturing and services PMI reports came in as followed — 50.0 and 52.1. Dealers were anticipating 51.5 and 54.5 respectively, which weighed on EUR/USD. If Germany continues to falter it may make QE all the more likely, which could trigger a new round of selling the single currency.

The macroeconomics may not match it but the euro has managed to put a halt to its own declines. Since EUR/USD pulled back above $1.24 in early November it has been gaining momentum since.

The $1.26 level is the first port of call, and if the currency can break through the 50-day moving average of $1.2613 we could see a continuation of this rally. The $1.27 level would be the next target. On the downside, if $1.25 is breeched the next level of support is likely to be in the $1.2450 region, and dealers will then look to $1.24. 

EUR/USD chart

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