Weekly currency market analysis
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 came under heavy selling pressure last week as momentum gathered behind the pro-Scottish independence campaign ahead of this Thursday’s referendum. The pound tumbled on Monday versus the dollar as a poll showed a lead for the Yes camp, but as the week went on the currency was able to recover some losses and end up not far off where it started. GBP/USD has shed almost ten cents since its July peak. EUR/GBP was fairly steady in the range it’s been in since June. But the pound gained on the Australian dollar, which came under pressure amid faltering economic indicators down under.
The Scottish referendum is the only game in town this week for Sterling. In the run up, the pound is likely to track the polls, with any lead for the yes camp likely to heap pressure on GBP, particularly against the bullish dollar. Friday morning should see some stabilisation, though a Yes victory could spark a major sell-off - some banks estimate as much as 15 per cent could be shed in the event of independence.
The dollar posted its best weekly advance in ten months as a string of positive US data bolstered the case for the Federal Reserve to hike interest rates. The Greenback climbed by 3.5 per cent against its Australian peer and notched up gains on the euro and pound. The dollar hit a fresh 14-month peak against a basket of major currencies and was strongly higher versus emerging market currencies. USD/JPY was sharply higher, rising to a fresh six-year peak above the 107 mark.
This week’s Federal Reserve meeting will be the main focus for markets. Janet Yellen’s press conference will be closely monitored as investors search for signs as to when rates might rise. The Philly Fed Manufacturing Index is always fuel for the fire as well.
The euro remained under pressure last week as it nursed its recent heavy losses, though there were no major negative moves. EUR/USD was steady at a 14-month low having tumbled previously on the European Central Bank’s new easing measures and on expectations the Fed is preparing to tighten. The single currency was unchanged against the pound, while EUR/JPY rose sharply as the yen faltered.
In the week ahead, German ZEW economic sentiment data is about the biggest data release. But events in Ukraine, with Russia saying it will retaliate to EU sanctions, will remain high up the agenda. Again a vote in favour of Scottish independence could startle markets as it may boost support for separatist movements in Spain and Belgium.
Sweden’s krona fell to a one-month low against the euro ahead of Sunday’s general election. A rise in unemployment raised more fears that the country’s recovery is faltering and could be in the grip of a deflationary cycle. SEK has lost around ten per cent this year, the worst performing developed nation currency.