Dollar pairs slip as calm returns

Volatility has declined as the rouble is steady but traders are on edge ahead of the Federal Reserve meeting tonight.

Bank of England
Source: Bloomberg

GBP/USD retreats ahead of BoE minutes

Sterling has slipped in overnight trading as a sense of normality has returned to the currency markets in the wake of the Russian red alert yesterday. The pound saw an inflow of funds as the rouble plunged, despite the best efforts of the Russian central bank to stabilise the currency. The Russian saga is likely to stay in the news for the foreseeable future and any additional rumblings could give a boost to GBP/USD.

At 9.30am (London time) the Bank of England will release minutes from its latest meeting, and traders are anticipating two of the nine members to vote in favour of a rate rise and the remaining seven members to hold steady. Inflation in the UK has dropped to its lowest level in 12 years. Declining commodity prices could push UK CPI below 1% in the coming months but I feel this will be a problem for GBP/USD in early 2015. Looking towards the rest of the year the pounds safe-haven status will serve it well.

If the GBP/USD drifts lower it could find support in the $1.5640 region, and traders will be eyeing the 50-day moving average of $1.58 as the near-term target.

Spot FX GBP/USD chart

EUR/USD dips before CPI data

The EUR/USD pair has seen a pullback in overnight trading as traders turn their attention away from Russia and back to the eurozone. At 10am (London time) the CPI report for the eurozone will be released and all eyes will be on signs of deflation. There is still speculation that the European Central Bank will embark on a quantitative easing scheme next year and this morning’s announcements will provide us with an indication of what the central bank may do next. Deflation has been a concern for Mario Draghi long before the slump in the price of oil or the recent developments in Moscow, and these factors will weigh on EUR/USD.

The Greek prime minister Antonis Samaras is hoping to secure his party’s candidate for the role of president today. Mr Samaras is taking a big risk on the presidential election and if it doesn’t go his way it could lead to political upheaval in Athens.

Added to the mix is the FOMC meeting at 7pm (London time) and dealers will be listening out for the phrase ‘considerable time’. In my opinion the Fed will stick to the dovish side of the fence as the geo-political situation has rapidly changed recently.

Deflation concerns in the eurozone could drive EUR/USD to the $1.24 mark which coincides with the 200-hour moving average, and any moves higher are likely to encounter resistance at $1.25.

Spot FX EUR/USD chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.