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Currency Trading Update

Monday, 15 Dec 2008 | 12:24 PM ET

Over the next 24 hours, the announcement of the Federal Reserve's rate decision will be by far the biggest piece of news. However, forex traders should also keep an eye on economic indicators out of Australia and the UK:

Asian Trading Session
12/15, 19:30 ET

Reserve Bank of Australia’s December Meeting Minutes - The release of the minutes from the Reserve Bank of Australia’s (RBA) December meeting, when they cut rates by 100bps to 4.25%, will be watched by traders as a gauge of the Monetary Policy Board’s bias on interest rates going forward. Indeed, these minutes provide a more in-depth look at the RBA’s concerns and outlooks for inflation and growth in coming months. Based on the December 3 policy statement released by RBA Governor Glenn Stevens, the central bank believes that monetary policy is already expansionary, which suggests that they may stop cutting rates so aggressively in coming months. If the RBA meeting minutes reiterate this sentiment, the Australian dollar could actually gain.

European Trading Session
12/16, 04:30 ET
UK Consumer Price Index (NOV) - On Tuesday at 4:30 ET, UK Consumer Price Index (CPI) is expected to fall negative for the second straight month and may bring the annual rate down to 3.9 percent from 4.5 percent. However, given the plunge in commodity prices in recent months along with waning domestic demand, there is a possibility that CPI could fall even more than expected. As a result, the news could weigh on the British pound, especially in the EUR/GBP pair. On the other hand, indications that inflation pressures are not falling sufficiently enough could lead the British pound higher.

US Trading Session
12/16, 14:15 ET
Federal Open Market Committee (FOMC) Rate Decision - On December 16 at 14:15 ET, the Federal Reserve is widely anticipated to announce a 50bp cut to the fed funds rate, which would bring the rate to 0.50%, according to Bloomberg News. However, this is actually on the lower end of what the markets are expecting, as fed fund futures are pricing in a 72% chance of a 75bp cut to 0.25%. This upcoming monetary policy decision will be extremely important not only because of the prospect of such historically low rates, but also because the FOMC’s policy statement may signal that they are done cutting rates, or may suggest that they are prepared to pursue unconventional options like quantitative easing. The news could have major consequences for the US dollar and risk trends in general, meaning that the Japanese yen crosses may experience significant volatility.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC

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