Weekly Forex Wrap Up from January 19th to January 23rd
Central Banks took center stage yet again with some surprising the markets while a few remained to wait and watch. The much talked about ECB’s QE was announced, with monthly purchases of €60 billion from March 2015 through September 2016. Volatility continued to be the major theme in the currency markets this week.
Bank of Japan stays on the sidelines
The BoJ’s monetary policy turned out to be a non-event as Governor Kuroda refrained from announcing any further easing measures, while slashing inflation forecasts. However, market participants expect to see further easing down the line. The Japanese Yen continued to remain stable amidst a week of volatility and continued its third straight week of strengthening into the ECB’s event. With the exception of the BoJ monetary policy there were no other major market moving events this week.
- Revised industrial production m/m -0.5% as expected
- Japan consumer confidence 38.8 vs. 38.6
- BoJ keeps interest rates unchanged, no further expansion to QQE; cuts inflation forecasts
BoE Hawks head back to the dove camp
The Bank of England released its monetary policy meeting minutes which showed that the previous two dissenters who were voting in favor of interest rate hikes refrained from doing so this time around. With falling inflation, the BoE now remains unanimous in pledging to keep interest rates at 0.5% and keep its asset purchase program steady. This week also saw the monthly labor market data being released, with the unemployment rate ticking lower while seeing a modest recovery in average wages as well. The Pound was weaker against the Greenback and the Yen but managed to gain against the weaker commodity risk currencies.
- Rightmove Housing Price index m/m 1.4%
- Average earnings index 3m/y 1.7% as expected up from 1.4% previous month
- Unemployment rate 5.8% vs. 5.9%
- Retail sales m/m 0.4% vs. -0.6%
Bank of Canada cuts interest rates earlier than expected
While it was only a matter of time for Bank of Canada to cut its interest rates, the markets were taken by surprise as BoC slashed interest rates from 1% to 0.75%. BoC Governor Poloz cited the bank’s decision as a precautionary move to help revive growth by encouraging lending amidst falling wages and weaker labour market data. Inflation expectations were also revised downwards. Economic data for most of this week continued to print in the red, perhaps justifying the BoC’s interest rate decision.
- Manufacturing sales m/m -1.4% vs. -0.5%
- Wholesale sales m/m -0.3% vs. 0.2%
- BoC overnight rate 0.75%
- Core CPI m/m -0.3%; CPI m/m -0.7% vs. -0.5%
- Core retail sales m/m 0.7% vs. 0.5%; retail sales m/m 0.4% vs. 0.1%
Draghi delivers QE to the markets
The week was dramatic in the run up to the ECB’s decision with news leaks and rumors speculating the size and scope of the QE. All said and done, Draghi did as expected, announcing the QE details, slightly above market consensus. Most of the National Central Banks will be tasked with purchasing their sovereign bonds up to 25%. Draghi left interest rates unchanged. Economic data was mostly optimistic for Europe this week.
- German PPI m/m -0.7% vs. -0.3%
- German ZEW economic sentiment 48.4 vs. 40.1; Eurozone ZEW economic sentiment 45.2 vs. 37.6
- ECB announces over €1 trillion in QE purchases from March through September 2016
- French flash manufacturing PMI 49.5 vs. 50.9; Flash services PMI 49.5 vs. 50.9
- German flash manufacturing PMI 51 vs. 51.8 ; Flash services PMI 52.7 vs. 52.6
- Eurozone flash manufacturing PMI 51; Flash services PMI 52.3 vs. 52.1
Greenback, the mute spectator
The US dollar remained on the sidelines this week, what with other major central bankers taking center stage. Nonetheless, the US Dollar was relatively stable this week despite the volatility. With the exception of housing data, there were no major events from the US this week.
- Building permits 1.03mn vs. 1.06mn
- Housing starts 1.09mn vs. 1.04mn
- Weekly unemployment claims 307k vs. 301k
- Housing price index m/m 0.8% vs. 0.4%