IFX Market Report: Thursday 16th December 2021

The US Dollar is down this morning as the Federal Reserve last night announced it will be doubling the rate at which it will reduce its bond purchases, and new forecasts from policymakers signalled as many as three interest rate hikes in 2022. The Fed said that it would “begin reducing the pace of its asset purchases in January and buy just $60 billion of bonds each month going forward, compared to $90 billion in the month of December”. This decision to “aggressively ease bond purchases follows recent inflation data showing a 6.8% surge in November, which was higher than expected and the fastest rate since 1982.”. The message from Fed Chair Jerome Powell was rather positive, claiming that “economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy”. He went on to add that while the arrival of the Omicron variant posed a risk to the recovery, the US is “making rapid progress towards maximum employment” and demand remains “very strong”. Since yesterday evening the Dollar Index (DXY) weakened from a three-week high and continued to depreciate.

GBPUSD started the day at 1.3274 and struggled in the build up to the latest Fed decision. After closing at 1.3212, Cable has gone on to challenge the 1.33 handle this morning.

GBPEUR also made a minor loss on Wednesday. The pair opened at 1.1776 and closed at 1.1733.

EURUSD continued to trade in a tight range yesterday and closed just below where it opened. The pair started at 1.1273 and closed at 1.1261.

On the data front it’s a packed schedule. There is PMI data releases from the UK, Eurozone, Germany and the US. At 12:00 the Bank of England will give their latest interest rate decision, followed by the ECB at 12:45.

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