The Forex Week In Review

The Forex Week In Review

The main story that dominated Forex markets this week was the catastrophic slide in Sterling, driven by a surge in fears for a UK exit from the EU. On Sunday evening as markets opened in Asia London Mayor Boris Johnson announced his support for the “Brexit” campaign, this dissent by a key member of the ruling Conservative party struck a huge blow to those campaigning for the Uk to remain in the UK and the ensuing investor uncertainty saw Sterling sharply sold across the board, sustaining massive losses against the Japanese Yen and commodity currencies. Over the week Sterling losses continued as reports emerged from different Banks giving their take on the potential damage to the UK economy from a “Brexit”. The looming UK referendum on June 23rd is likley to see GBP volatility continue as polling results emerge, similar to the run up to the Scottish Independence Referendum.

On Friday G20 finance ministers and central bankers gathered in Shanghai for the annual G20 summit which will continue over the weekend. The China slow-down, market volatility and global stimulus will lead the discussions, with BOJ’s Kuroda having recently called for co-ordinated action by central bankers to stabilise global markets.

 

Overview

  • USD Shrugging off the Dovish tone of the January FOMC meeting minutes, the US Dollar is being supported by a spate of positive data with Core inflation rising at its fastest pace in over four years and 4Q 2015 GDP unexpectedly jumping 1%. Personal Consumption Expenditure data however, which the Fed use as a key guage for inflation, was weaker than expected, keeping expectations mixed ahead of the March FOMC.
  • EUR A recovery in equity markets over the week weighed on EUR which also came under pressure from a stronger US Dollar. A raft of weak EuroZone PMIs keeps expectations for further ECB easing supported ahead of their upcoming meeting.
  • GBP Brexit concerns weighed heavily on Sterling over the week as Bank reports forecasted the likely damage to the UK economy from a “Brexit”, further fuelling investor uncertainty. 4Q GDP on Thursday managed to stem the losses with data printing in line with expectations.
  • JPY A recovery in risk-sentiment over the week, supported by strength in Oil and equity markets, saw the Japanese Yen weaken as safe-haven demand softened. Moves were further by comments from BOJ Governor Kuroda informing markets that there is scope for pushing Japanese rates deeper into negative territory.
  • AUD The Australian Dollar continued to strengthen over the week, supported by a more accommodative risk-appetite across markets, with sentiment buoyed by the moves in Oil. This strength was further compounded by unexpected strength in domestic 4Q Private Capital Expenditure which printed 0.8% against an expected -3%.
  • CAD Recent Oil strength has benefitted the Canadian Dollar greatly. News of a Saudi Arabia & Russia led deal to freeze output at current levels received backing from other Oil-producers, and though countered by news of record builds in US Crude Oil inventories, keeps hopes alive for a correction to the current over-supply in Oil markets. Oil strengthened further into the weekend driven by a technical rally as traders squared Brent positions ahead of next week’s expiry.