LONDON SUMMARY

The first post-FOMC session clearly showed the emphasis the market places on the status and outlook of US interest rates. Traders have lulled through three very tame sessions this week in anticipation – or perhaps trepidation – of the comments from the US Federal Reserve. Once passed, activity instantly picked up upon the entrance of London market participants. We have had an extremely busy session thus far, despite the Bank of England and European Central Bank Rate Announcement to come within hours. The two dominant themes of today’s market, prior to the aforementioned events to come, are the strength in EUR crosses and the London morning meltdown in GBP.

The irony of the robust gains seen in both EURJPY and EURGBP is that EURUSD has been unquestionably weak today. Nonetheless, the other currencies have obviously traded softer, leading the crosses higher. From the start, the crosses were higher, trading with a firm EURUSD, which topped out around 1.3565. USD buyers stepped in, halting the move higher. Though the EUR slid, the currency traded stronger relative to other currencies, so the ascent of EURJPY and EURGBP continued. The former ran from the 162.50 zone, briefly peaking above 163.00. The latter has tacked on about 25+ pips and is currently pressing its highs in the 0.6810 area. As for EURUSD, it sits modestly below where it began the session, now at 1.3530.

The second story of the pre-MPC market is the pervasive weakness in GBP. GBPUSD maintained a heavy tone from the arrival of London traders, even in its early move to the topside, where it put in its 1.9965 highs. From that area, we have witnessed a shredding to the tune of over 100 pips. While the plunge began with the USD rise, weak economic data released at 0430 EDT (0830 GMT) served as a catalyst to take the currency lower. Once below 1.9900, the move accelerated as aggressive sellers knocked GBPUSD to the (estimated) 1.9860 low. Cable currently sits wounded at 1.9875.

From here, all eyes are on the plethora of economic data to come within the next few hours. The most important events will be the Bank of England MPC Rate Decision, the ECB Rate Decision, and the US March Trade Balance. One note: while the market is largely expecting a quarter-point hike from the MPC, we have heard an increasing amount of talk regarding the possibility of a +0.50% interest rate hike.