By Jake Trask at UKForex, an international money transfer service
Sterling started this week on a high after last week’s upbeat quarterly inflation report, with GBP/USD close to 1.61 and GBP/EUR above 1.19. MPC member Martin Weale said that the bank could not keep the base rate at 0.5% for too long and that increases in inflation expectations may force their hand to raise rates. This pushed cable through the 1.61 level. Wednesday saw no change, as predicted, with the MPC votes. Sterling slipped back from 1.6175 to 1.6075 on a more bullish than expected FOMC statement, which hinted there is still a possibility of a December QE taper.
However, as the week went on, cable clawed back this loss and more heading towards 1.62, which shows the support the pound has at present. Yesterday’s monthly UK CBI survey was the best reading in nearly two decades, which with other positive data points to a strong finish to the year for the pound. Q4 GDP could be even better than Q3.
The big event for the euro was this week’s news that the ECB considered taking the overnight deposit rate from 0% to -0.1%. This sent EUR/USD down from 1.3540 to 1.3420 on Wednesday. Mario Draghi later tried to talk this down in a speech in Berlin. EUR/USD rebounded on the back of his comments, gapping 30 pips from 1.3440 to 1.3470.
Data releases from the eurozone were mixed at best this week. The German economy showed continued signs of improvement with a better than expected monthly Ifo Business Climate Survey and PMI releases. French and Eurozone as a whole PMIs were worse than expected, however, and with inflation running at less than half the target 2%, Mario Draghi may be forced to implement more easing measures in the coming months.
AUD was the week’s big loser after getting hammered on all fronts. Bullish FOMC minutes, IMF comments on it being 10% over valued, poor Chinese PMI data and comments by RBA Governor Glenn Stevens saying the he was “open minded” on currency intervention lead to an end of week Aussie rout. It hit a 3 year low against the pound and a 5 year low against the Kiwi. As unlikely as a December QE taper is in America, if it happens, we can expect AUD to suffer further losses. The Kiwi suffered on the back of these data releases and lost nearly 2 cents and against the dollar to currently trade at .8150.
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