The currency blog

A big week in the markets last week saw the release of interest rate decisions in the UK and the Eurozone and the results of the stress testing of 19 US banks. To summarise we saw the UK add another £50 billion to its quantitative easing programme, the ECB cut rates by 0.25% and launch a programme to buy €60bn of covered bonds. In the US the results of the stress testing demanded that 10 of the largest US banks raise $74.6 bn for a worst case scenario.

The result of last weeks activity and data releases in the markets was mainly positive and encouraged more confidence within the equity markets- the result of this was a weaker USD. The USD fell to 1.36 against the Euro and 1.52 against the pound, data on Friday confirmed that non-farm payrolls fell 539,000 against an anticipated fall of 600,000 so better news than expected and another reason to sell the USD as risk appetite increased. Sterling remains pinned in a range of 1.11-1.12 against the euro as both the pound and the euro rallied against the dollar in unison.
The main gainers in the currency markets last week again were the higher yielding currencies, the AUD hit a 7 month high on the Yen…Oil traded 10% higher to $58 a barrel and gold lifted- this helped the CAD, ZAR and the NZD to gain further. After last weeks continued rally in equities we could see some profit taking today bring back strength to the dollar and the YEN and soften the higher yielders- we have already seen some evidence of this in early trading.
For the week ahead we need to focus on the trade balance data tomorrow from the UK and the US, on Wednesday we have UK unemployment data and the quarterly inflation report. In the US we see retail sales on Wednesday and CPI data on Friday- the CPI could demonstrate a very slow pace of price growth in the US and highlight the risk of deflation- a concern raised by FOMC members in their last meeting.

Discuss on this on the Currency Exchange Forum