The Week That Was
This week Forex markers were dominated by a tale of two central banks. The main focus of the week was the January FOMC meeting which passed as expected with the Fed maintaining rates and sounding rather cautious in their accompanying monetary policy statement. The Fed acknowledged that recent data has been weaker than desired and noted also the threats posed to the US economy by recent global developments and market volatility. Again, these conclusions were as expected and if anything, brings the Fed’s assessment of the economic outlook closer to that of the market. Accordingly, market reaction to the meeting was to start pushing out expectations for the next rate-rise as well as expectations of the number of rate-rises to come this year, resulting in broad USD weakness.
Next up we had the Bank Of Japan and expectations ahead of the meeting were fairly split with some players anticipating the BOJ would initiate further easing, with sliding Oil prices and weak consumer spending weighing heavily on inflation, and others sensing that with USDJPY holding above 115 and the Nikkei remaining supportive the BOJ would keep their powder dry. The BOJ actually acted to cut interest rates into negative territory, for the first time in Japanese history. The move was widely unexpected following very recent comments by Kuroda that the BOJ were not contemplating negative rates. JPY was sent sharply lower following the news.
The Forex Week In Review
- USD The Dollar was slightly lower this week, recovering initial heavy losses as a Dovish Fed confirmed the views of many players who were already pushing out subsequent rate-hike expectations. The Fed’s concern regarding the threat to the US inflation and growth outlook from global financial developments and continued energy price declines has USD upside capped for now. US GDP on Friday printed in line with expectations whilst Q3 Personal Consumption printed above expectations.
- EUR The Euro traded higher over the week driven in part by equity market weakness, spurred by further Oil price declines in the early part of the week, and finally by USD weakness in the wake of the Dovish January FOMC. EuroZone CPI on Friday printed better than expected.
GBP Sterling was able to reclaim higher ground this week, making a break above the key 1.4350 resistance level driven by a recovery in Oil prices,US Dollar weakness and Q4 GDP printing in-line with expectations, allaying fears that growth had slowed more than expected in the end of last year
JPY The Bank of Japan shocked markets on the final trading day of January as they announced a move into negative interest rates, a move which in the words of BOJ Governor Kuroda is intended to “show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it”. Despite noting the continued recovery for the Japanese economy Kuroda explained that the move is intended to combat the risks posed from the “recent further falls in oil prices, uncertainty over emerging economies,including China and global market instability”.
AUD The Australian Dollar sustained a recovery this week, with positive surprises on the domestic data front coming from better-than-expected CPI data which showed that inflation ticked up in the fourth quarter. Gains were extended in the latter half of the week as a Dovish FOMC meeting saw players pricing out expectations for a further rate-increase in March, with the Fed citing a low inflation outlook and global market turmoil as threats to the US economy.
CAD The Canadian Dollar continued to reclaim higher ground this week as a rebound in Oil prices and US Dollar weakness conspired to support the beleaguered Canadian currency. Canadian GDP on Friday printed in line with expectations. Traders will be monitoring Oil as it rests just under the key $34.50 resistance level.