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Global Exchange

Exchange Rates for Saturday 1st November 2014

US FOMC leaves monetary policy on hold yesterday ahead of BoE and ECB meetings today

Yesterday's Federal Open Market Committee (FOMC) meeting saw monetary policy left on hold, but substantial discussions were held regarding loosening monetary policy further in the future. Much like the UK and Eurozone authorities, the US Federal Reserve are not yet convinced of the need for further monetary loosening, although they have noted a deceleration in economic activity.

The Federal Reserve have stated that they will monitor the situation closely and provide additional assistance as required, which may mean an interest rate cut at the September FOMC meeting.

On the central bank theme, the argument for coordinated action from central banks continues to grow, with more QE and rate cuts now expected not only from the West, but from the likes of Brazil, Russia and India and China.

The negative sentiments from central banks makes it unlikely that risk appetite will improve so further purchasing of US Dollar assets (US Treasury, US Government Bonds, Gold etc) so we expect further strengthening of the US Dollar with equity markets, the Euro and Sterling the likely fall guys.

The data released yesterday from the US reported a slowdown in manufacturing activity and weak pricing for goods as well. The employment survey from ADP recorded a larger increase in employment that expected, but still a slowing from last month. It doesn't bode well for the all important non-farm payrolls released tomorrow.

Today's focus is on the Bank of England monetary policy committee and European Central Bank governing council meetings today at 12.00pm and 12.45pm (BST) respectively.

Neither central bank is expected to adjust interest rates or pump more money into the system because they acted in both cases loosening monetary policy last month). However, the case for lower interest rates is already building, particularly in the Eurozone, where the periphery economies' woes are now having a significant negative impact on the 'core' countries as well.

As for the UK, the markets are already pricing in a rate cut and more QE, which may increase the downward pressure on Sterling against the major currencies. 

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