The Week That Was…
A quiet week for Forex markets. With no key US data and the September FOMC looming next week, the focus this week fell on another central bank: The Bank Of England.
GBPUSD’s sharp decline over recent weeks was a clear indication of the shift in market sentiment as we approached the August BOE meeting. With global growth concerns weighing and a some disappointing data recently, a Hawkish outcome was not expected from this meeting. Indeed the Bank Of England held rates unchanged with the voting retaining an 8-1 split but GBP was actually well supported on the release as investors took comfort from the Bank’s message that” Global developments do not as yet appear sufficient to alter materially the central outlook described in the August Report”. The BOE will however be monitoring economic activity in the UK for any signs that the global headwinds created by the China slowdown are having a negative impact on the economy with the 12-month inflation forecast cut to 2% from 2.2% prior.
Elsewhere we saw the RBNZ cut the New Zealand headline interest rate by the expected 25bps and the BOC remain on hold. All eyes now turn ahead to the September FOMC and what promises to be a pivotal moment for 2015.
- USD A softer week for the US Dollar as traders pare positions ahead of the crucial September FOMC rate decision. Uncertainty remains, as still the data continues to disappoint with Friday’s University Of Michigan confidence survey printing 85 against 91 expected. The CME price only a 24% likelihood of a rate rise at this meeting. However, in support of a rise we’ve heard the Central Bank’s of both Mexico and India calling for the Fed to go ahead and raise rates now, ending the uncertainty which they feel is more damaging.
- EUR Still operating as a function of risk appetite the single currency was stronger last week as global equity markets weakened ahead of next week’s US rate decision. The ECB’s recent policy announcement present a downside risk to any sustained EUR strength and comments from ECB’s Praet this week reiterated the Central Bank’s “willingness and ability to act”.
- GBP Short covering ahead of the August BOE meeting saw GBP sharply higher against USD this week. The meeting passed with rates left unchanged as expected, but a slightly hawkish tone was perceived as the BOE remain supportive of a 2016 rate increase. CPI data next week will be key for traders with GBP still enjoying strongly trending prices against currencies fixed in easing cycles.
- JPY The Japanese currency took a step back this week as the peak of safe-haven driven demand seems to have passed for now. Japanese PM Shinzo Abe’s return to office for another 3 years saw the Nikkei soar by over 1000 points midweek prompting further JPY weakness.
- AUD Recovered some territory last week against broad US Dollar weakness and the prospect of Chinese stimulus. Commodity markets and disinflationary pressure stemming from the China slowdown continue to weigh.
- CAD Oil prices remained range-bound this week keeping the Canadian Dollar similarly hemmed in against it’s main counterparts. The BOC kept rates unchanged at this month’s meeting stating that “Movements in the Canadian dollar are helping to absorb some of the impact of lower commodity prices and are facilitating the adjustments taking place in Canada’s economy”. The Central Bank added that current risks to the inflation outlook remain within the parameters for which the currenty monetary policy is appropriate.