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January 2016

Daily Currency Insight

Published: Wednesday 27 January 2016

  • BoE warn against implication of a Brexit
  • US consumer feeling confident
  • Eyes on the FED statement tought for clues of future action
The Pound came under renewed selling pressure yesterday as Mark Carney suggested that a "Brexit" would be a problem for the UK as it may have an adverse effect on the current account deficit. We could be in the worst of both worlds with a run on the currency as international investors hesitate to buy UK assets and without the manufacturing base, ponder on the weaker Pound. Markets do not appreciate uncertainty and as we do not yet know the exact timing of the referendum, the Pound may continue to suffer as a result.
Over in the states, it was reported that Consumer Confidence rose in January to the highest level since October, indicating that for the time being, Americans are not too concerned with the volatility in global stock and oil markets. The index rose to 98.1 from a revised 96.3 in December. This measure is closely watched for any indication that the current turmoil in global markets are affecting US consumers who will be relied upon to drive US growth in the early part of 2016. For now, shoppers are still fairly confident and the Dollar should continue to benefit if that remains the case.
The focus today will undoubtedly be in the United States as the Federal Reserve meet and release a statement with regard to future policy. There will be no press conference or release of a dot graph so the tone of the statement will be key. They are likely to acknowledge the decline in the oil price and lower inflation levels while at the same time reminding markets of the general resilience of the US economy. Markets are expecting a dovish message so perhaps the largest reaction would be if they surprised everyone and suggested that they were still on track for a move as early as March. Either way expect significant volatility around the announcement. Unfortunately this does not occur until 7pm so we are likely to remain range bound during London trading hours.
FX Research by Ricky Nelson
Daily Currency Analysis with Michael Condron
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