FOMC Minutes Leave GBP USD Rate Unaltered, Eurozone Anti-Austerity Protests Threaten EUR

Published: Thursday, 15 November 2012 09:00 BST - Written by Ben Hughes

STORY LINK FOMC Minutes Leave GBP USD Rate Unaltered, Eurozone Anti-Austerity Protests Threaten EUR

Last night’s release of the minutes of the most recent Federal Reserve FOMC meeting proved to be significant. The memos from the Fed’s monetary policy meeting from earlier this month revealed that several Fed policymakers were in favour of scrapping the US’s ‘Operation Twist’, which sees the US central bank swap long dated gilts for short term debt in an effort to reduce the cost of borrowing for American businesses.

The Fed minutes went on to re-emphasised the FOMC members’ belief that US interest rates will remain at a historically low level for several years to come. The publication once again predicted that the cost of borrowing from America’s central bank will remain ‘close to zero’ at least until 2015.

The net effect of the Fed’s commentary has, up until this point, been Dollar-neutral, with the GBP USD exchange rate starting today’s session firmly lodged in the mid-1.5800s. This lack of movement suggests that market participants are not expecting that ‘less Twist’ could lead to ‘more QE’ in the US next year.

Elsewhere, the euro managed to strengthen against the Pound during yesterday’s session, dipping from above 1.2500 to end the day in the low-1.2400s. The move came in spite of scenes of civil unrest in several eurozone states, as protestors took to the streets to voice their displeasure at stringent austerity measures which have been imposed in the region in recent months and years. Predictably, the worst hotspots for protestors were in the nations hit hardest by draconian government cuts and tax hikes. Predictably, Greece and Portugal were badly affected and police entered into violent clashes with striking workers in Spain. However, a total of 23 nations saw protests, including France and Belgium. The markets are far from impressed with any hint of social unrest, so if the flare-ups continue today, then the potential exists for a weakening of the single currency ahead of the weekend close.

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