Today the currency exchange markets will be watching the US Fed as it announces the latest interest rate and decides whether to intensify its program of quantitative easing. Fed Chairman Ben Bernanke has commented that unless the US shows resilient growth and unemployment goes down he may kick-start the process with QEIII.
In related news President Obama’s bill of tax cuts pass the US Senate yesterday in spite of opposition from some Democrats (who thought the bill too lenient on the rich) and some Republicans (who thought the bill didn’t tackle the US deficit.) The bill is expected to foster job creation in the US and could improve sentiment toward the dollar.
In the UK and Europe meanwhile attention has turned to a new EU bill intended to curb banker bonuses. The new regulations limit bonuses to a multiple of each banker’s basic salary. The concern (or threat depending on who you ask) is that these regulations will encourage an exodus of bankers outside London and Europe when they are implemented next year.
In Ireland for instance this is already causing tension. This morning the Irish government told Allied Irish Bank that it could not pay its bankers an expected €40m in bonuses. This is in part because Allied Irish Bank is due to receive large contributions from the Irish government and lost €1.6bn this quarter. Yet the news can hardly please the Irish banking community.
In economic releases meanwhile this morning the UK Consumer Price Index figures have been released. These measure consumer purchasing power, and have been quite positive. This month CPI increased 0.4% beating market expectations that the Index would increase 0.3%. This is positive for sterling and could add further to optimism about the UK economy.
Furthermore this morning the German ZEW Survey for December has been released measuring investor sentiment in EU finances. These figures have also been positive arriving at 4.3 against market expectations of 3.9. However it is worth noting that investors were more cautious about the current situation in EU and German finances.
By Peter Lavelle with foreign currency exchange specialist Pure FX.