GO Markets - FX Market Commentary

By IBTimes Staff Reporter | January 27 2010 6:00 PM

A cautious undertone governed currency markets ahead of the FOMC policy meeting overnight. The greenback kept buoyant against major counterparts ahead of the interest rate decision, although the market was expecting interest rates to remain at current levels, the finer points of communication were being anticipated with much of the conjecture surrounding the fed's mortgage-debt buying plans. As anticipated the Fed announced interest rates to remain at record lows between zero and 25 bps, in addition, the Fed also confirmed the purchases of $1.25 trillion in mortgage backed securities would concluded on scheduled date of March 31. The finer points of the communication presented mildly hawkish compared to previous statements - this fuelled Dollar strength across the board. The risk barometer that is the Dollar/yen combo was also north bound, perhaps an indication on the positivity surrounding the interest rate decision. The greenback was given further support as FOMC member Thomas Hoenig suggested he no longer supported the Fed's pledge to keep rates low for an extended period.

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To the UK, despite a drop in equity markets at the opening bell, sterling rebounded from its post GDP lull as a member of the BoE's monetary policy committee Andrew Sentance suggested the preliminary fourth quarter growth of 0.1 per cent may see a higher revision, stating indicators from the labour market, business surveys and measures of retail spending continue to suggest that recovery started earlier and may have been stronger than the provisional GDP estimates currently suggest. Tuesday's GDP result showed the UK economy resumed growth in the fourth quarter, albeit less than expected. Although it represents an exit from a state of recession, growth of 0.1 per cent fell short of 0.4 per cent estimates, which represents an annual contraction of 3.2 per cent.

Locally, the Aussies dropped off below 90 US cents overnight to current level of 89.5 US cents despite printing slightly stronger than expected inflation data in domestic trade yesterday. Consumer Price Index data came in ahead of expectations, recording 0.5 per cent growth in the fourth quarter to represent an annual inflation rate of 2.1 per cent. The ensuing minutes saw the Aussie make an immediate 20 pip surge and continued its upward trajectory to highs of 90.45 US cents. This in conjunction with a slew of recent economic feedback certainly heightens the chances of a rate hike and we can expect the interest rate conjecture to continue ahead of RBA rates decision on Tuesday.