Dollar surges as speculative sentiments sours.
German Unemployment set to show a 15,000 job shed
British sterling rebounds against the dollar in overnight trade
FOMC keeps its benchmark rates unchanged at 0.25%
Australian dollar having a tough time as China slows down on imports
Forex Forecast – US Dollar: Investor sentiment has diminished and the US currency has subsequently climbed. The correlation between risk appetite and the dollar is hard to miss; but it isn’t the only fundamental driver for the benchmark – it is just the most influential. The other prominent factors for the greenback are the same yardsticks for value that every currency is measured against: interest rate and growth potential. For yield, the dollar is still lagging most of its counterparts.
At 0.249 percent, the three-month US Libor stands at a discount to even its Japanese andSwiss counterparts. However, the outlook for interest rates is far more hawkish in the US than it is in Japan – sentiment that we can confirm through expectations priced into overnight index swaps. According to Credit Suisse’s data, the US is looking at 82bps of tightening over the next 12 months and Japan only 1 bp. In fact, policy officials took another step towards loosening the reins today. Though the FOMC would vote to keep the benchmark interest rate unchanged at its range between zero and 0.25 percent with the ‘extended period’ time frame; there was finally dissention from a member in the loose time frame and hard expirations dates have been placed on most of the emergency programs. As for growth, the IMF and World Bank’s forecasts for the US economy are significantly higher than the European Union and Japan. Perhaps Friday’s 4Q GDP reading will add another leg of support for the dollar.
DATA : Durable goods and Chicago Fed national activity index
Forex Forecast – Sterling: The British Sterling advanced against the greenback to reach a high of 1.6228 during the overnight trade, and the currency may continue to push higher going into the U.S. trade as policy makers in the U.K. hold an improved outlook for the region. Bank of England board member Andrew Sentance said that the economic recovery “started earlier and may have been stronger” than the advanced 4Q GDP reading showed while speaking at a British Property Federation conference, and expects the nation to avoid a ‘double-dip’ recession as the expansion in monetary and fiscal policy continues to feed through the real economy. The sterling has also rallied well against the euro, as the single currency continues to find itself under pressure from the Greek debt story. GBP/EUR has now gone through the 1.1550 level and the sterling is looking strong this morning.
DATA : No major data to be realised today
Forex Forecast – Euro: The Euro is little changed heading into the European session after prices retraced nearly all of the drop below 1.40 seen in early overnight trade. German Unemployment figures are set to show that the Euro Zone’s largest economy shed 15,000 jobs in January, the first increase since June, while the Unemployment Rate is expected to rise to 8.2%. However, analysts have steadily missed the mark on forecasting the outcome over the past six months, calling for joblessness to increase only to see it move in the opposite direction. Firms make hiring decisions based on their expectations about future economic growth.
DATA : German Unemployment, Economic Confidence and Consumer confidence
The Australian dollar is likely to have an even tougher time now as fears that China is trying to slow the pace of its economic growth, a resulting decline in commodity prices, and a return of global risk aversion are all likely to take their toll.
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