The Week That Was…
Forex markets have seen some acute periods of event driven volatility in recent weeks and this week was no different. Initially the main focus of the week was on the Bank of England November meeting with many players anticipating a Hawkish event with the Bank signalling that a rate-hike was moving closer. However, this was not to be the case; the BOE revised down its inflation and growth forecasts citing the negative effects of Sterling strength and increased downside risks stemming partly from global factors and a lower global growth outlook. Sterling was swiftly sold following the release as expectations of a rate-hike (which had recently started building again) were quickly unwound.
Full focus was then firmly fixed on the US October Non-Farm Payrolls and Unemployment rate. Consensus was for a 182k print with unemployment declining further to 5.0%.The Unemployment rate did indeed decline to 5.0% the big surprise came as the NFPs printed firmly above expectations at 271k. Reaction to the news saw USD demand heavily increase as expectations for a December rate-hike saw pricing jump to 78%.
- USD Dollar bulls finally got some affirmation this week as NFP and unemployment data added to weight to the case for a December lift-off. The Fed themselves have said that the decision for lift-off will not hinge on any single release but players are clearly taking this as an encouraging sign.
- EUR The single currency was sharply lower this week following comments made by ECB’s Draghi that the ECB remain willing to act and have a range of options open to them, confirming that the ECB will reassess conditions in December with a view to increasing stimulus for the EuroZone economy noting that “external factors are creating downside risks to the outlook for growth and inflation.”
- GBP Sterling was delivered heavily lower this week in response to the BOE’s Dovish “Super-Thursday”. Market participants were clearly caught somewhat offside as governor Mark Carney commented that the Bank could cut rates or further extend their quantitative easing program if downside risks persist.
- JPY The minutes from the Bank of Japan’s October 6th/7th meeting revealed that although members remain broadly upbeat about the domestic economy, concerns were growing over risks posed from China and emerging market economies.The Japanese yen was lower over the week as the US Dollar broke firmly to the upside.
- AUD Initial strength on the back of positive PMI data out of China was unwound over the week with the Aussie trading lower as, despite keeping the headline interest rate unchanged, the RBA did leave the door open for further easing noting that “the outlook for inflation may afford scope for further easing of policy.”
- CAD The Canadian Dollar was sharply lower over the week, mimicking the decline in Oil prices which retreated from the $48 per barrel mark mid-week.Canadian unemployment data on Friday showed an unexpected decline, printing 7.0% against expectations of 7.1%.