This week in the markets: Conflict in Ukraine further

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The US dollar strengthened early last week, after US durable goods data jumped in July. Demand for these goods rose by 22.6% from the previous month and was the biggest rise on record. An increase in commercial aircraft demand was one of the biggest contributors, with GBP/USD falling to a low of 1.6538 as a result.

US GDP released later in the week also printed stronger than market forecasts, although news was largely priced in after the positive durable goods data. It provided a modicum of support to the USD although it didn’t last long, as GBP/USD climbed back towards 1.66 as the week came to a close.

By Alex Edwards at UKForex, an international money transfer service

EUR/USD was thumped lower throughout last week. Attention on Friday morning was centred on European inflation data but it didn’t really surprise with the CPI Flash Estimate y/y printing at 0.3% (as expected). The European unemployment rate was also released and caused little fuss, printing at 11.5%.

The pair fell to a low of 1.3126 late on Friday in reaction to the stronger than expected US data, as well as re-positioning ahead of the long weekend in the US. Meanwhile the Russia/Ukraine situation continues to weigh heavily on sentiment. There’s also growing and louder calls for the ECB to act this week when officials meet to decide on monetary policy.

According to a report from Reuters, Benoît Cœuré – an ECB official – said over the weekend that the central bank was ready to adjust policy and provide additional liquidity to banks if needed. In addition, Draghi’s recent comments at Jackson Hole add weight to the argument that the bank will do something this Thursday.

Data wise, things are a little slow to get going this week with it being Labor Day in the US.  The market’s attention early in the week will be focused on UK PMI’s but this will soon turn to a raft of central bank announcements starting with the RBA rate announcement and statement on Tuesday.  BoE and ECB announcements are due later in the week with the Bank of England widely expected to leave policy unchanged. US non-farm payrolls is then due on Friday, and there are signs that labour market conditions are improving.

If this trend continues it will likely put more pressure on the Fed to take a more hawkish view on interest rates, and perhaps signal to the market when we might see the next hike.

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