Weekly currency market analysis
GBP Last week saw the pound fall by around 1.5 per cent against the dollar as positive US data drove GBP/USD lower.
Sterling lost close to three cents with the polls showing that the “Yes” campaign was gaining momentum. With just two weeks to go until the Scottish independence referendum, the Bank of England has left rates on hold as UK data failed to offer much support. EUR/GBP was mostly steady, not far off a two-year low but Sterling failed to make any ground on the broadly weaker euro. The pound dropped by over two per cent against the Australian dollar, with GBP/AUD sliding to its lowest since November last year as the pound shed roughly four cents.
Investors will be looking for new stimulus from the Bank of England this week when Governor Mark Carney speaks. Inflation report hearings and manufacturing data will also be closely observed. Following such an uninspiring week, markets will also need to evaluate whether there is longer-term concern over the strength of the pound or if it has been oversold.
Sound economic data and speculation that the Federal Reserve could hike rates sooner than expected sent the dollar high across the board last week, although this was brought down by Friday’s non-farm payroll figures. Geopolitical concerns and the European Central Bank’s stimulus measures also supported the Greenback against emerging market currencies. USD/JPY rose to a new six-year high as the yen was under pressure on the diverging policy outlook between the Fed and the Bank of Japan, which last week maintained its pledge to increase the monetary base at an annual pace of 60-70 trillion yen. The dollar reached a 14-month high against the euro, and also gained ground on the pound finishing the week at its highest since December last year.
Investors will monitor geopolitical events closely over the coming week, as the Greenback reaps the benefits of a broad risk aversion in the currency markets. Consumer sentiment, retail sales and unemployment data will also be closely watched as markets assess when the Fed is ready to raise rates.
Following the European Central Bank jolting markets with an unexpected set of measures designed to tackle the Eurozone’s economic problems, the euro posted its eighth straight weekly loss. Further cuts to interest rates and a limited programme of asset purchases have been unveiled by the bank as it seeks to stave off the risk of deflation. EUR/USD fell to a new 14-month low as the divergence in European and US monetary policy sent the pair down. EUR/GBP remained firm with no fresh reason to buy Sterling. EUR/JPY was also lower.
With little data to speak of this week the markets will continue to be driven by the ECB’s measures, and the crisis in Ukraine.
The Kiwi traded at its lowest level in six months against the Greenback. EUR/NZD fell as the New Zealand dollar was supported against the single currency. This week investors will be waiting for the Reserve Bank of New Zealand’s interest rate announcement.