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Ian_Daly Dec 18th 2013 9:38 am

Currency Report 18/Dec Sterling hits back v Euro and USD but focus on FOMC
 
UK News & Data releases

There are a number of key releases today that could impact GBP/USD exchange rate. The BoE MPC minutes this morning will be of interest. However, we doubt there would be much change in rhetoric since the November inflation report, with the Bank likely to reiterate the case for a prolonged period of accommodative policy.

The labour market statistics released at the same time should attract greater interest. Our economists expect another decline in the unemployment rate to 7.5%. The claimant count will also be a focus. Indications of continued improvement in the labour market will likely prompt speculation that policy rates could rise earlier than current pricing of mid-2015, which we would expect to be GBP positive.

USA News & Data releases

We expect the USD to remain well supported ahead of the much awaited December FOMC meeting. Some better US data and progress from US officials on the budget negotiations have seen increased market expectations of early 'tapering' with around a 33% probability priced in for today. If the Fed holds back on announcing 'tapering' at today's meeting we would expect the USD to pare back the gains seen over the past week.

However, should the Fed announce 'tapering', while this would likely trigger an initial USD positive reaction, any accompanying measures used to aid forward guidance to reinforce the message of lower rates for longer will likely dampen enthusiasm towards the USD. If announced, the size and implied pace of stimulus withdrawal will also be key, as well as the updated economic projections.

Euro zone news & data releases

German IFO survey this morning may attract some interest. Strong December German manufacturing PMI and ZEW surveys suggests risks are to the upside for today's release. However, with the FOMC meeting this evening, we think the market may prefer to stay on the side lines until after the meeting.
Scandinavian news and data releases

The Riksbank cut its key policy rate by 25bps yesterday, in line with consensus expectations. They viewed that economic activity was broadly as expected, however a cut was warranted due to unexpectedly low inflation and weaker inflationary pressures going forward. While the Bank's implied interest rate path was also revised lower, this largely reflected the 25bp cut.


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