The Forex Week In Review
In the absence of much tier one data, Forex markets this week took a breather from recent volatility. The main economic event of the week was the Bank of England’s “Super Thursday” which saw the May rate decision, release of the meeting minutes and updating of the quarterly inflation report.
The meeting however was largely seen as a non-event. Rates were left unchanged as expected amidst a rather Dovish outlook which saw growth forecasts lowered over the remainder of this year and the next two. Alongside this the BOE were keen to highlight the damage already caused by Brexit uncertainty, to which they attribute the 9% fall in Sterling since Nov, and noted that they see both unemployment and inflation rising in the event of a Brexit, which would lead to materially lower economic growth. Flows were subdued with Sterling fluctuating on the session but seeing no clear directional move.
USD USD edged higher over a quiet data week boosted by comments Boston Fed President Rosengren, who is generally seen as being part of the Dovish Fed spectrum, noting that the market is underpricing the US rate path this year. USD was leant further support on Friday as the latest Retail Sales data printed strongly above expectations followed by an equally impressive Michigan Confidence survey.
EUR Latest official commentary notes that the ECB is monitoring property prices for risk of asset bubbles stemming from its quantitative easing program, according to Governing Council member Ewald Nowotny’s comments in Vienna. He also stated that the ECB doesn’t have exchange rate goal nor does it have means to influence currency.
GBP Sterling was under pressure over the week firstly from a raft of data weakness which shows UK Factory Output having fallen to its lowest levels since 2013, followed by a Dovish Bank of England who kept rates unchanged but sounded the alarm bells over Brexit risk.
JPY The Japanese Yen softened over the week with moves fuelled mainly by a recovery in risk appetite, which saw JPY safe-haven demand diminished, but also by comments from Japanese Financial Minister Taro Aso who said that the BOJ is ready to intervene in the currency market if JPY moves are volatile enough to hurt the country’s trade and economy.
AUD The Australian Dollar continued to slide lower this week extending losses seen on the back of the RBA’s first rate cut of 2016 which also saw the bank lowering its inflation forecasts. The latest labour market data also added pressure as Australian job advertisements eased in April, providing further signs demand for labour had peaked after the strong run in 2015.
CAD The Canadian Dollar recovered recent losses this week driven by a fresh turn higher in Oil which was boosted by comments from the Internation Energy Agency who said that they expect Oil supply to dramatically reduce in H2 this year driven by strong demand and falling supply owing to recent production outages around the globe.