Sterling outperformed the euro yesterday as we saw GBP/EUR hit a week high as the currency pair traded through the 1.42 handle. There was also a decent move in cable as GBP/USD hit a 4 week high to push the currency pair towards the $1.57 handle. That move did not last however, as market participants started to move back into dollars ahead of the FOMC meeting last night. This saw cable give up all gains made Wednesday, which continued after the FOMC released their findings – hawkish comments pointing towards a rate hike in September. The hint that the Fed might move on interest rates before the BoE is moving GBP/USD in favour of the Buck. The pounds position against the euro still looks favourable, despite the Greek issue being a somewhat distant memory.
The euro took hits left right and centre yesterday as the single currency posted losses against the majors. We saw EUR/USD fall under the $1.10 handle after a slightly hawkish FOMC, and losses against sterling saw the currency pair remain over the 1.42 handle, as BoE expectations for a rate rise may still happen before year end. With the Greek Parliament’s recent vote in favour of much-needed reforms, the immediate threat that for the first time a member might leave the eurozone has abated. But it will still take some time before Athens reaches a final deal with its partners about a new aid package. This will continue to weigh on the euro. Meanwhile, after a standoff lasting six months, the rest of the eurozone needs a break to tend to itself. Elsewhere, Greek talks with creditors progressed smoothly according to unnamed govt official although the head of one of the country’s biggest creditors said there needs to be a substantial write-down of the country’s debt, inconsistent with EU treaties. Athens stock exchange is unlikely to reopen this week following IT issues regarding restrictions needing to be resolved at banks.
The dollar rose against sterling, the yen and the euro during Asian trade Thursday, encouraged by what investors interpreted as a slightly hawkish statement from the FOMC in deciding when to raise short term rates. The greenback advanced to ¥124.19, its highest since July 21, before paring earlier gains to ¥124.07. That compared with ¥123.94 late Wednesday in New York. The U.S. currency also strengthened against the euro, which fell to $1.0950 midday from $1.0986 in New York overnight. Versus the pound we saw the dollar squeeze back under the $1.60 handle. The U.S. dollar tracked the overnight firm tone that followed the Federal Reserves statement after a two-day policy setting meeting. The stock market’s solid performance in Asia also encouraged market sentiment to help the dollar ratchet up in the morning session before stabilizing just above the ¥124-line. The Fed on Wednesday left its benchmark short-term interest rate near zero, but dropped several hints that it is close to seeing enough improvement in the job market to prompt officials to raise the rate as early as September. They didn’t say it clearly but investors can slightly smell (a rate increase) in September.