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Foreign Exchange Rates: USD CAD AUD & NZD Value Depend On Fed Decision

December 16, 2013 - Written by David Woodsmith

The final full trading week of 2013 brings a number of highly significant data releases even before we reach Wednesday evening’s hotly anticipated US Federal Reserve policy announcement.

The first hors d’oevre of note comes tomorrow morning in the form of the latest UK Consumer Price Index inflation data. The rate of British price increases has fallen steeply over the previous two months. A similar showing tomorrow would convince further currency market participants that UK interest rates might stay at their current record low of 0.50% for a little longer than had previously been factored-in. The upshot of this could be a weaker Pound during the run-up to Christmas.

Shortly after the UK price rise figures comes December’s German ZEW sentiment survey which is always a closely-watched print. Analysts are anticipating a showing of 55.0, up from last month’s 54.6. Anything less than this and the euro loses ground, potentially sending the Pound euro exchange rate (GBP/EUR) up towards the 1.2000 threshold once more.

Perhaps the most important indicator on the potential outcome of America’s big policy decision comes tomorrow afternoon with the release of American Consumer Price Inflation numbers for November. A sizable increase on October’s 1.0% showing is expected, with the consensus amongst economists that a 1.3% print is the most likely outcome. With many Federal Reserve policy makers citing the anaemic level of domestic price rises as a reason why the Fed should persevere with its $85bn per month Quantitative Easing scheme. A November CPI inflation result of 1.3% or higher would increase investor’s thoughts on the likelihood of a tightening of policy by the Fed the next day.

A cut to QE in the States on Wednesday will provoke a strengthening of the Greenback against the other major currencies. A pronounced weakening in the relative value of the Commodity Dollars (AUD, NZD & CAD) is also likely.
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