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By Alex Edwards at  UKForex, an international money transfer service

It was a slow start to the week last week.   The US calendar was thin and it was a public holiday in North America  on Monday.   UK CPI was the first risk event of the week – the year on year rate for October printing at 2.2%, below market forecasts for 2.5% and much closer to the Bank of England’s target of 2%.   GBP/USD fell to the week’s low of 1.5860 following the publication, as markets naturally pushed back expectations for a base rate hike.

Cable then bounced back  on Wednesday  after data showed that UK unemployment in October fell to 7.6% and rallied again an hour later after BoE Governor Carney upgraded the UK’s growth forecasts, lowered inflation forecasts and brought forward the bank’s expectations for unemployment reaching the 7% threshold (the level pin pointed for the bank to consider lifting interest rates).   Weak UK retail sales data was largely shrugged off  on Thursday  by a market that was keen to sell the USD following the release of poor data from the States including trade balance and unemployment claims, but moreover it was a response to Fed Chair-Designate Janet Yellen’s testimony before the Senate Banking Committee.

Yellen is certainly no hawk and indicated to the market that any QE taper decision might be a little further away than December or March.   Risk caught a bid and the dollar finished the week on the back foot, with GBP/USD verging on a break of 1.61.   It made that break once after MPC member Martin Weale said that the Bank of England can’t risk to be seen deliberately ignoring a rise in inflation expectations under its forward guidance.

This Wednesday  is set to be a busy day.   Carney will speak before Parliament’s Treasury Select Committee.   US CPI and Retail Sales data is then released in the afternoon, whilst FOMC Meeting Minutes are published in the evening.   We don’t expect any surprises, although Bernanke is speaking earlier in the week and perhaps may take the opportunity to paint a mildly rosier picture of the US economy than Yellen did last week.

EUR/USD also finished the week on a stronger note, benefiting from Yellen’s dovish comments.   The range in EUR/USD last week was fairly narrow however, it not being able to break above 1.35.   Data including German, French and Italian GDP prints were mixed during the week whilst the surprise ECB rate cut a week prior amid fears over the threat of deflation continues to weigh on the euro.   German ZEW and eurozone PMIs will be the focus for traders in Europe this week, but of course investors will be monitoring US data for signs of a possible Fed taper.

The NZD continues to look strong, supported by expectations that the RBNZ will raise interest rates next year, a possible move designed to stem the rise of house prices in Auckland and Christchurch in particular.   The concern however is that a hike in interest rates will attract yield demand and fuel further gains in the value of the ‘kiwi’.   The RBNZ will continue to do their best to jawbone it lower – in fact they were on the wires last week saying that the current high value of the NZD posed risks to the NZ economy.   In the meantime the AUD was licking its wounds last week, owing to the soft employment data and the downbeat RBA growth forecasts the week before.   The RBA’s Monetary Policy Meeting Minutes are published  on Tuesday, which poses a possible downside risk to the AUD if recent RBA rhetoric is anything to go by.