Today has been mixed with a substantial amount of volatility in the currency markets. The pound surged this morning on news of a 6-3 split from the last policy meetings minutes. The market by and large expected this more hawkish stance, yet the market still responded with a 50 pip rally against most of the majors. Markets have pulled back since with a move back toward 1.62 on GBP/USD and a break through key support at 1.18 on the GBP/EUR pair.
The knee jerk seen today from the pound is a testament to market conditions at present. Price action is erratic as traders continue to speculate on thin news on interest rates and inflation. We would expect this to calm moving forward towards the end of the week as this becomes old news.
The Euro has gained in trade today as traders now price in a rate hike by August this year. This brings the Eurozone in line with the UK with a more hawkish stance to defend threats from elevated price pressures. ECB president Jean Claude Trichet spoke today in Brussels and said that policy makers would take the necessary actions to ensure price stability.
The ECB would not warrant a hike in interest rates unless they absolutely had to, due to the crippling effect it could have on their member nations with substantial amounts of debt. It is clear that inflation needs to be controlled and they do not want to be seen as being complacent.
Traders have been focusing today on oil prices as costs per barrel approach $100 in New York. The uprising in Libya has sent shockwaves through the markets with stocks falling amid concerns of higher energy prices impacting on economic growth.
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Torfx Currency Dealer
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
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