Welcome to the Pure FX account of the latest changes in the foreign exchange rates.
This is intended as a brief guide to movements in the exchange rates overnight, to put you in the best position when you exchange currencies.
So much hangs in the balance! The foreign exchange market is broadly unchanged today, as investors await crucial decisions from Germany’s constitutional court and the US Federal Reserve this week, before deciding where to head next. As Robert Fullem, a trader at Mizuho Corp. Bank puts it, “Right now the market is in a wait-and-see mode.”
German Constitutional Court to Decide Rescue Fund Legality
In Germany, the constitutional court is set to rule whether the Eurozone rescue fund (the European Stability Mechanism) violates Germany’s constitution. The court began examining this question several months ago, in response to a complaint from leading economists who feel that the ESM illegitimately removes spending powers from Germany’s parliament.
Though it’s unlikely the court will block the ESM entirely, it could nonetheless impose conditions on its use. That would spook the markets, and send the euro down.
Alternatively, the German court could also delay its decision entirely this week, given the recent European Central Bank announcement of unlimited bond purchases to aid Spain and Italy. So says Peter Gauweiller, one of the economists who filed the original complaint, noting, the ECB scheme “possibly calls into question the plans for the announcement of the ruling on the ESM this coming Wednesday.”
US Federal Reserve to Decide Whether to Launch QE3
Elsewhere, attention will also turn to the latest meeting of the Federal Reserve later this week. Following the disappointing Non-Farm Payroll in the US last Friday, in which the US created just 96k new jobs in July, it’s widely expected the Fed will announce some form of stimulus to support the US economy.
That could be as simple as telling the markets interest rates will be held at record lows for another year, or as complex as unveiling a third round of quantitative easing. If it’s the former, we can expect the markets to feel disappointed and the US dollar to gain, as investor hopes for more QE are dashed. In the latter case though, the US dollar will fall against the pound and euro.
UK Releases Latest Trade Data
Last but not least, it’s also worth pointing out that the latest UK trade data is released today. If this points to a slimmer than expected deficit, especially if trade with emerging nations increases, we could see the pound climb higher sometime this morning.
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