Considering the global stock market turmoil of late and the wild swings in the oil price over the last 5 days, you have to say that the European single currency has managed to avoid any major calamity and has continued to trade within a reasonably tight range against the US$; with $1.08 – 1.10 give or take a few pips containing the price action.
ECB President Mario Draghi was active early on in the week sharing his strong opinion that their actions to date have been successful and that the current low interest rate levels were warranted, with the massive asset purchase programme set to deliver a strong and sustainable recovery within the EU. The ECB remains ready to act with further accommodative policy and the market now favours action to be taken at the March meeting.
From the US we saw the Federal Open Market Committee leave rates on hold this time around, having raised them for the 1st time in almost a decade in December 2015. The US does expect economic conditions to slow this year although having seen labour market conditions improve, there remains ground for gradual rate increases over the next 2 years.
US 4th quarter GDP at 0.7% was more or less as expected leaving the annualised 2015 preliminary estimate now slightly below 2.0% so hardly breakneck growth and not necessarily enough to get overly bullish on the US dollar.
Sterling opened the week close to €1.32, and then dropped to trade slightly above 1.30 as Bank of England Governor Mark Carney went on the record stating that conditions in the UK were not ripe for an interest rate rise. The weak domestic economy and failure to re-establish above the trend growth warrant no further accommodative interest rate policy changes. Having reiterated the fact that now is not the time to raise interest rates; the market has clearly further scaled back interest rate hike expectations way into 2017. Sterling succumbed to selling pressure on such an assessment from Carney.
By Thursday the pound managed to stage a rally of sorts following the release of the UK’s 4th quarter GDP 1st estimate, which came in bang on expectation at 0.5% growth, leaving the 2015 annualised growth rate at 2.2%, down on previous forecasts from the UK Government but not as bad as some market commentators had predicted.
Brexit, UK’s impending decision of whether to remain in the EU or not, hangs heavy on investors’ willingness to consider investment decisions while the outcome is in the balance.
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