The week so far had continued to see the pound lose ground against the dollar and the euro. One of the large highlights of the week was due at 7pm (BST), the Federal Reserve minutes from the most recent FOMC meeting. This lead to minimal movements between the pound and US dollar moving within a 40 pip range all day. A similar trading pattern also monopolised movements between the pound and the euro.
During Wednesday’s trading session, Germany’s inflation data fell in line with expectations resulting in little movement on the levels. The market was clearly preparing itself for Ben Bernanke’s comments and opinion seemed to be split amongst analysts as to what would be said.
In short Bernanke’s comments supported sustained fiscal stimulus despite heavily hinting last month that the Fed would consider slowing down their QE program towards the end of the year. This move was very hawkish compared to Bernanke’s typical tone as he reverted back to a previous comment he made stating that he wants to see more sustained improvements in the US jobs market before looking at tightening fiscal policy.
Risk appetite picked up instantly as stocks rallied and the dollar weakened. The dollar’s position was then weakened further as a couple of hours later, the Bank of Japan announced that its economy was experiencing a moderate recovery and that their own asset purchasing facility would remain in place for the time being. This saw the USDJPY rate slip below 100 once again as the Bank of Japan’s stance gave investor’s confidence that stability of the economy and not just growth was a key priority.
Perhaps the biggest mover on Wednesday night was EURUSD moving up 3.5% before moving back to just over 1.30. In other news, Australia’s unemployment rate unexpectedly increased to 5.7% leading to the Australian dollar weakening off slightly although this knee jerk reaction was reversed quickly.
The US jobs data due on Thursday will potentially be more prevalent than usual as investors seek further hints as to how the Fed will react going forward.
13.30pm – USD – Initial Jobless Claims: Expected to fall to 340,000.
13.30pm – USD – Continuing Jobless Claims: Expected to worsen to 2.95mln.