Welcome to the Weekly Market Analysis - our digestible currency market update which gives you an expert insight into key movements, and what to expect in the coming week.
Sterling had a mixed week. The pound was lower against the broadly stronger dollar but rose on the euro. Cable dipped to a year-low (below the $1.60 mark) on Friday, following a big fall on Wednesday after the Federal Reserve meeting. EUR/GBP slid back towards a two-year low hit in early October. Expectations about when the respective central banks will hike rates continue to drive these pairs. After dovish signals from the Bank of England and a more hawkish tone from the Fed, investors are extending bets the US bank will be the first to blink. The pound stretched out losses against the Australian dollar to end near a six-week low, whilst jumping to a six-year peak against the yen.
It’s a data-heavy week ahead of us, with the usual triple whammy of manufacturing, construction and services PMIs to kick off November. Thursday sees the Bank of England make its interest rate announcement. While no one is expecting a rate hike this side of 2015, it will be interesting to see what tone the bank strikes after the Fed called it a day for QE.
The dollar pumped last week as the Fed dumped stimulus after six years. No firm indication on rates was offered but the hawkish tones from Washington offered succour to dollar bulls. Better-than-expected third quarter US GDP data also boosted the Greenback as it posted gains across the board. USD/JPY moved beyond 112 for the first time since 2007, while the dollar clawed back recent losses to the euro to inch towards a two-year high. The dollar basket hit a four-week high. The Greenback climbed against the Loonie after figures showed Canada’s economy shrank. It wasn’t all positive for the dollar, though, as some currencies gained on weaker oil prices.
This week, investor attention will be drawn to PMI data for the manufacturing and non-manufacturing sectors, trade balance figures and the all-important non-farm payrolls on Friday. Dollar pairs are also likely to continue to be driven by the Fed’s policy move last week.
The euro was lower against the dollar and sterling last week, dragged down by a combination of factors. Expectation that the European Central Bank will have to commit to further easing measures underpins weak sentiment for the single currency. Inflation in the eurozone inched up to 0.4 per cent but this remains woeful and well short of target while, even more worryingly, core inflation dipped to 0.7 per cent. The single currency slid back to a two-year low against the dollar and a one-year trough against the pound. It did gain on the weaker yen but this was hardly a surprise given the Bank of Japan’s surprise move on Friday.
In the week ahead, Spanish unemployment data will be the starter for Thursday’s main course of the ECB’s monthly policy announcement. After beginning to purchase some bonds last month investors will be closely scrutinising the statement and Mario Draghi’s press conference.
The yen went into freefall on Friday as the BoJ shocked markets with a fresh bout of stimulus. It sent the yen to a seven-year low against the dollar as USD/JPY broke through the 112 mark. GBP/JPY was up three per cent, while even the embattled euro managed to gain on the yen.