Will they or won’t they? Crucial week for currency markets as US quantitative easing decision looms

A seminal week is in store for the US Dollar with the Federal Reserve’s decision on quantitative easing to be revealed on Wednesday. This decision is also predicted to have a knock-on effect on a wealth of other currencies, as movements have been dominated by the threat of quantitative easing for the past weeks. Whilst some have cited the most obvious forecast – that a quantitative easing decision will bring down the Dollar even further and push up other major currencies such as the Euro – there are others who believe that a Dollar rally could be bought about if the decision on Wednesday is less aggressive than expected. There are also key meetings in Australia, UK Europe and Japan this week so the volatility is set to continue.

Pound Sterling – UK Markets

Over the course of October, the Pound saw a 3.6% move against the Euro and 3% against the Dollar. Friday’s close saw £1 buying €1.15128 and $1.5953. In early European trading, Sterling has fallen back against the Euro and is currently trading at €1.1488, but it has continued to strengthen against the Dollar and is standing at $1.6025 (at 08:30 GMT). UK PMI manufacturing data this morning has improved despite expectations. A figure of 54.9 was achieved against an expectation of 53.3 showing an improvement in business conditions in the manufacturing sector. The Bank of England will hold its next Monetary Policy Committee meeting on Thursday. This meeting will set interest rates and determine if a further round of quantitative easing is required to stimulate the UK economy – Sterling is being helped by the fact that the likelihood of further quantitative easing has diminished following last week’s strong GDP figures. However, there is still negative news to deal with such as new data released by the Bank of England for September showing that UK consumers remain wary of taking on new debt. Mortgage approvals were flat at just under 47 500 and mortgage lending was down on the August level.

US Dollar – US Markets

Friday’s GDP figures revealed that the US economy grew at an annualised rate of 2% in the third quarter. The rate of expansion was faster than the 1.7% increase in GDP seen in the second quarter however was still below the expected forecast of a 2.1 percent gain. The US unemployment level remains stubbornly high at 9.6% of the workforce. The next set of US unemployment and non-farm payroll data will be released on Friday. The US Federal Reserve is set to make its rates decision known on Wednesday and it is likely that a new raft of quantitative easing measures will be announced. Such a move is likely to put downward pressure on the Dollar against other major currencies.

Euro – European Markets

The Euro has opened slightly above the $1.40 mark for the second week. The currency has weakened marginally against the Dollar following disappointing German economic data, but is still trading above Friday’s close at $1.3962 (at 09:00 GMT). The Euro appreciated by 0.95% against the US Dollar over the course of October. Tomorrow sees manufacturing data from Germany and Europe with the key event of the week being Thursday’s interest rate decision from the European Central Bank. The expectation is that interest rates will be held at 1 percent.

Other Currencies – Highlights

The Australian Central Reserve Bank will announce its latest interest rate decision on Friday. Australia was the only major economy not to fall into recession during the global financial crisis and the first to raise interest rates. Currently, an Australian Dollar buys £0.611 or £$1.6240. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.