The Forex Week In Review
Forex markets this week were dominated by a tale of two central banks with both the Fed and the BOJ meeting for their April rate decisions. The FOMC on Wednesday passed largely as expected with the Fed keeping rates on hold but sounding slightly more optimistic in their accompanying statement, to reflect the reduction in risks posed by global developments such as Oil prices and China. However the Fed were keen to stress that these risks, though diminished , have not completely subsided and still darken the outlook. Economic projection for GDP growth was revised lower to reflect this prevailing downside pressure. The economy is expected to expand 2.2% in 2016 (previous: 2.4%) and inflation to rise 1.2% (previous: 1.6%).
The BOJ meeting followed and, whilst the bank were largely expected to enact further easing, markets were taken by surprise as the bank actually kept policy at its current levels retaining the JPY80trln monetary base and -0.1% headline. Markets were at-least expecting an increase in ETF purchases but again the BOJ remained on-hold. Markets were heavily expectant of a weaker in JPY in response to further BOJ easing and the reaction was brutal with JPY jumping three figures against the US Dollar and Euro alike.
- USD Bulls didn’t get the June signal they were looking for form the April FOMC and despite the Fed sounding a little more optimistic about global conditions, the domestic outlook was downgraded once again with both inflation and growth forecasts lowered, underscored by a weaker-than-expected Q1 GDP print.
- EUR Despite some weak data prints, the Euro remained supported over the week, benefiting from a weaker USD. On the data front, German harmonized CPI fell into negative territory whilst EuroZone CPI also printed below expectations with headline inflation falling deeper into negative territory and core CPI printing 0.8% against 0.9% expected.
- GBP Sterling strengthened over the week bolstered by an improvement in the Brexit outlook as the latest polls show an increasing number of voters are in favour of the UK remaining in the EU. These moves were furthered by positive Data flow as Q1 GDP printed above expectations, following on from a recent up tick in CPI.
- JPY The Japanese Yen was driven sharply higher over the week in response to the BOJ April rates meeting which saw the bank shock markets by refraining from any further easing at this point. This decisions came just as the latest inflation data showed the Japanese economy has once again slipped back into deflation. Alongside keeping current policy unchanged the bank lowered its growth and inflation forecasts for fiscal 2017.
- AUD Recent bullishness in the Australian Dollar came to a head this week as price reversed sharply following the latest inflation data which printed well below market expectations. Traders are now increasing expectations of further easing by the RBA at their upcoming policy meeting.
CAD The Canadian Dollar has continued to strengthen this week boosted by yet further gains in Oil which continue to print fresh five month highs. Canadian GDP in February printed in line with expectations.