Commodity Linked Currencies Gain

Commodity linked currencies rebounded from yesterday’s losses as investors concluded that China’s recently announced monetary tightening policies would not adversely affect the growth of the world’s third largest economy. The Aussie gained but markets remain nervous. Australia is one of the chief suppliers of iron ore and coal to China. Australian employers added 10,000 jobs in December which also helped boost confidence in the Aussie. Some currency experts believe that market reaction to China’s move was exaggerated.  Omer Esiner said, “The reaction yesterday to China’s measures was a bit overstated, with the euro and most commodity currencies selling off. Today we are seeing a retracement of that move and the realization that the impact of the China’s bank moves won’t be so detrimental to the global growth scenario. ”

Markets Wait For Fed Beige Book Report

Today the Fed releases its ‘beige book’ which is a report on regional economic conditions and is used as a basis for discussion at FOMC meetings. The next Federal Open Market Committee meets January 27th. Some traders believe the report will be subdued pointing to a prolonged US recovery. Joseph Trevisani of FX Solutions Inc. stated, “Past Beige Books have said the same thing that things are slowly getting better, but today’s is probably going to be toned down. The market is really looking for something that will change the current complexion of things, and the Fed has been making some noise about pulling liquidity.”

Pound Gains on Euro and Yen

The pound gained on the euro and yen after Bank of England policymaker Andrew Sentence told the Guardian newspaper that the BOE will take a ‘wait and see’ approach to its quantitative-easing programs. Better than expected UK industrial production data also boosted the pound in currency markets. Adam Cole of the Royal Bank of Canada stated, “The comments from Sentance gave a sniff of a turn in the U.K. rate cycle, and that lifted the pound. It’s a bit premature in our view, but the comments moved the markets.”

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