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FX Currency Market Leading Indicators ? GBP Outlook

December 1, 2015 - Written by John Cameron

Turbulent Price Action Forecast ahead of Christmas Shutdown



Less than four weeks’ trading remains until the Christmas shutdown and analysts forecast that this period could bring some of the most turbulent price action in recent memory.

Our leading analyst takes a look at the key indicators in the FX market and what they are likely to mean for the value of the Pound Sterling (currency : GBP) against the sixteen most actively traded global currencies.

77.5% Chance the Federal Reserve will Hike the Cash Rate in December



Forget Christmas Day – the 16th December is the stand-out date this month, as far as currency market investors are concerned.

Most analysts believe that, providing this Friday’s US jobs data comes in at or above expectations, then this will be the day which brings the first US interest rate increase in almost a decade.

Futures markets are pricing-in a 77.5% chance that US rate ‘lift-off’ will indeed happen on 16th December.

Such an outcome is forecast to favour the US Dollar (currency : USD), thanks to the increased yield which a hike will afford investors holding their funds in the States.

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Emerging Market Assets Forecast to Struggle if Fed Hikes Rates in December



As always with the markets, it’s all relative – higher US interest rates mean relatively lower yield in Australia, New Zealand and South Africa; therefore, expect a rate hike Stateside to hurt the Australian Dollar (currency : AUD), New Zealand Dollar (currency : NZD) and South African Rand (currency : ZAR) across the board.

VIX 'Fear Index' to Provoke Market Volatility ahead of Christmas Break



Elsewhere, another key indicator which is closely monitored by currency market participants is the VIX ‘Fear Index’ which gauges the volume of protective ‘put’ orders placed by Chicago’s equities traders when they strike deals.

VIX spiked to a fresh 5-year high of 53.29 on ‘Black Monday’, (the final Monday of August, 2015), as investors abandoned risk-laden assets.

Last month saw levels on VIX plunge from an intra-month high of 20.67 down to a relatively lowly 13.67.

If the US Federal Reserve does indeed tighten policy in the middle part of this month, then many analysts expect VIX to spike once again.

Expect the safe-haven Swiss Franc (currency : CHF) and Japanese Yen (currency : JPY) to be the principal beneficiaries in such a situation.

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TAGS: American Dollar Forecasts Pound Dollar Forecasts

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