The Forex Week In Review

The Forex Week In Review

The US Dollar was rocked mid-week as Fed President Dudley cooled rate-hike expectations saying that US financial conditions are significantly tighter than they were in December which along with a weakening global economy would have to be considered at the next FOMC meeting. These comments came amidst a raft of weak US data which added further weight to downside pressure on the Dollar investors scale back rate-hike expectations ahead of the March meeting.

Attention then turned to the Bank Of England’s “Super Thursday” meeting which passed as expected with the BOE voting to keep rates unchanged at 0.50% . The voting itself however did surprise as the previous 8-1 vote flipped to a unanimous 9-0 decision with long-time hawk Ian McCafferty resigning his Hawkish vote citing weak wage-growth and low inflation.

The accompanying statement provided a familiar assessment of the economic picture citing continued risks from the slowdown in emerging markets and global headwinds which gave the Bank cause to lower the domestic growth forecast for 2016 to 2.2% from 2.5% in November, stating that risks to growth lie on the downside. The Bank also lowered its short term inflation forecast expecting 2016 inflation to average just 0.8% whilst forecasting inflation to move above its 2% target by 2018 as global headwinds dissipate.

US employment data on Friday rounded off the weak with the Non-Farm payrolls printing sharply below expectations at just 153k vs 190k expected though USD was supported as the unemployment rate was shown to contract further to 4.9% and wage-growth unexpectedly increased both MoM and YoY.

Overview

  • USD The US Dollar was driven lower last week on Dovish comments from Fed President Dudley which came amidst a raft of weak US data including ISM Manufacturing & Non-Manufacturing misses. Dudley cooled rate-hike expectations ahead of the March FOMC citing tighter US financial conditions and a weaker global economy. A dismal January NFP was offset by an unexpected drop in the Unemployment rate and a similarly unexpected rise in wage-growth.
  • EUR Despite a raft of data weakness out of the EuroZone and Dovish comments mid-week by ECB President Draghi, the Euro was stronger over the week benefiting from a weaker US Dollar driven by unwinding US rate hike expectations and falling equity markets which were sent lower on a renewed down-turn in oil.
  • GBP Plenty of short positions were paird ahead of the February BOE meeting which saw GBP strengthen across the week. The meeting passed in a fairly muted fashion and as expected the BOE revised lower their short term forecasts but lifted their medium term inflation forecast which is expected to see the Bank’s 2% target hit by 2018.
  • JPY With Oil and Equity markets sliding, safe-haven demand saw the Japanese Yen strengthening sharply over an extremely volatile week trading back up to recent highs and fully reversing the losses suffered in the wake of the January BOJ meeting which saw the BOJ cutting Japanese rates into negative territory for the first time.
  • AUD Despite a dampened risk sentiment this week, the Aussie took full advantage of broad US Dollar weakness, ripping higher as US rate-hike expectations dwindled. The RBA left rates unchanged at their February meeting though did leave the door open for further easing citing a subdued inflation outlook.
  • CAD The Canadian Dollar continued to strengthen this week, again benefiting from sharp USD weakness driven by poor data and Dovish Fed commentary, though some gains were retraced on Friday as the latest Canadian Unemployment data showed an unexpected increase with rate increasing to 7.2% from 7.1% previous.