Anyone thinking Chairwoman Yellen would back off from her seeming enthusiasm for a first interest rate hike to be in 2015, would have been disappointed by her comments to Congress during her testimony. She continues to see the US economy as performing well and she pointed out that despite the slowing employment gains much of the spare capacity in the jobs market has been significantly reduced over the calendar year. She indicated that a rate hike was a “live possibility” at the FOMC December meeting. Others might have been disappointed but the greenback certainly wasn’t. EUR/USD is now trading comfortably through the trend-line support I showed in a recent blog. The longer it stays below, the more likely we will see further gains, for now the 1.08 level should represent a support zone of some sort, and the 1.0910 resistance.
So here we are, it’s Thursday… “Super Thursday”, will cable be shaken or stirred? For some time now the assumption has been that the Bank of England is likely to be less keen to hike than the Federal Reserve. Indeed until recently traders, when polled, weren’t expecting hikes in 2016 at all! Now, following some decent UK data, that consensus has edged towards earlier hikes, perhaps in summer 2016, but economists are more hawkish than that, they are looking for a May hike, perhaps even February. If your City economist is now looking for an earlier hike, it’s no surprise that two of the more hawkish MPC members are being watched more closely. Will they join the lone voter who has been pushing for hikes? The vote has been stuck at 8 for unchanged, 1 for hike for a while. The bookies are probably still expecting the same, but it could easily be 6 to 3 this time. If that happens, expect the pound sterling to strengthen.
Talking about the decent data in the UK, let me be more specific. Yesterday saw stronger than expected Services PMI data in Britain. While the data in the Eurozone (which also published) was stagnant, comprising of worse than expected data in Germany versus better than expected in France (a pattern that seems to be occurring with increasing frequency this year), the strong performance in the UK was matched by what came out across the pond. In the United States ISM Non-Manufacturing data was strong, a significant improvement on both the prior number and very subdued expectations. This is very encouraging indeed, after all, services is by far the dominant proportion of economic activity in both of these post-industrial advanced economies (U.K and U.S). It is certain to have made central bankers in the UK and US more comfortable about the sustainability of their respective economic recoveries. If we get a strong number tomorrow for the non-farm payrolls report, the calls for a December Federal Reserve hike will get louder for sure. I don’t need to tell you what would happen to the dollar then.
Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.
Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.
Follow our tweets @parityfxplc
Follow us on LinkedIn ParityFX Plc