USD Shines After Positive Minutes

Currency Market News on UK and US Interest Rates and The Beleaguered Euro

18, February 2010

Yesterday the markets digested the minutes of the February interest rate meetings for both the UK and the US. Firstly looking at the UK the vote was a unanimous 9-0 to keep interest rates on hold and also to hold Quantitative Easing at £200 billion.

The feedback from the MPC was ambiguous in the sense that the decision was unanimous and yet the comments were that it was a “finely balanced” decision to keep QE on hold. The unanimous decision gave sterling a boost which was then tempered by weaker than expected employment numbers. Going forward this does not change the sentiment for sterling which will struggle to appreciate until the outlook for the UK warrants a more hawkish approach from the MPC.

Over to the US and the FOMC upgraded their forecasts for the US economy reflecting a more bullish tone from the Fed. They also discussed trying to shrink their reserves over time although no time frame was announced to do this. The positive tone from the Fed with improved economic sentiment in the US coupled with loitering fear in the markets helped to push the USD higher. Japan as expected voted to keep their key overnight rate at 0.1% – no real surprises in the accompanying statement.

The main focus for the currency markets still surrounds the beleaguered euro which is threatening to fall below 1.35 against the USD risking further selling pressure for the single currency. Today data from the UK’s public finances was not pretty and is a further reminder that the UK needs to get its act together…sterling fell on the news unsurprisingly.