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Global Exchange

Exchange Rates for Friday 31st October 2014

US Dollar weakened following FOMC plans last week but will risk positive view last?

Last week was all about the US Federal Reserve meeting and the outcome was a programme of buying mortgage backed securities totalling $40 billion a month. It is a distinctly slower process of asset purchases than was imagined by the markets, and includes no Treasury purchases.

It is difficult to see how the Federal Reserve intends to act again ahead of the US Presidential elections, so this could end up being the final attempt to reinvigorate economic activity this year, and it may prove fruitless in terms of turning around the jobs markets, which has seen a sharp slowing in job creation in recent months.

So far the markets reaction has been risk positive, but why? Some action is better than none however, growth is unlikely to suddenly rebound in the US, or indeed in the Eurozone following this action.

The main reaction to the news came late Thursday, namely a weakening US Dollar, a strengthening Euro and some gains for the "risk" currencies the Aussie and Kiwi Dollar. Sterling made ground on the US Dollar but lost out to the Euro.

This week sees a plethora of data and surveys released. From the UK, we get Consumer Price Index from August, Bank of England minutes from September, August retail sales, the CBI industrial trends survey from September and and public finances from August.

In the Eurozone, the German ZEW survey and flash purchasing managers indices for manufacturing and services from September are the focus. As for the US, the Empire manufacturing survey from September, housing starts and existing home sales from August are likely to hold the focus.

Whilst it is a quiet start to the week, there is plenty of data and survey releases to keep markets busy. Moreover, unless there is a dramatic turnaround in these indicators, they are likely to point to further contraction in the Eurozone, a slowing in the pace of expansion in the US, and the UK flat lining on retail sales and struggling on the public finances.

A risk positive environment? It doesn't look like it. Therefore watch out for re-tracements in Sterling and the Euro against the US Dollar and for Sterling to have to upper hand against the Aussie and Kiwi Dollars. 

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