• Aussie continues to trade sideways, supported overnight by weaker greenback;
• Sterling loses ground as BOE minutes indicate low probability of a rate hike this year;
• Greenback broadly weaker after Fed reduces outlook for economic growth.
In the absence of local data to drive the Australian dollar yesterday, direction was sought from overseas, markets trading carefully awaiting direction from the FOMC statement. Throughout much of the Asian and European sessions, the Aussie dollar moved within a very tight range as volumes in foreign exchange markets remained cautiously thin. In an FOMC statement that suggested interest rates in the US are to remain low for a considerable time and lowering GDP forecasts, the Aussie dollar jumped by nearly 1 cent against the greenback as an attractive yield became sought after. In early trade today the Aussie has struggled to hold onto the 94 cent handle and is likely to remain trading sideways with little domestic data as we approach the end of the week.
Minutes from the Bank of England revealed that it is looking increasingly unlikely that UK interest rates will change by the end of this year, the Monetary Policy Committee voting unanimously to hold rates this month. Recent strength in the pound has stemmed from expectations that some policy makers are changing their stance on rates, a unanimous vote to maintain current policy has pushed back market expectations, however the prospect of a move this year should not be written off. The pound moved lower throughout the European session but regained losses amid a weaker greenback.
Trade throughout the week has been largely dominated in anticipation of the FOMC meeting where the Fed have indicated that interest rates are to remain low for a considerable time after the end of their bond buying programme. Expectations that monthly bond purchases will be reduced to $35 billion were met as the Fed noted that growth in economic activity has rebounded in recent months but has cut 2014 GDP forecasts to 2.1 – 2.3%. Forecasts still seem to moving in the right direction and whilst a US recovery remains sluggish, data is pointing towards a slow recovery.
[B]Tom Williams
Sales Trader[/B]