Overview 

One of the most notable events this week has been ECB’s Nowotny’s dovish comments, whereby the central banker said that additional sets of instruments are necessary, including structural tools. This saw immediate weakness through the EUR, seeing the shared currency give back recent gains against both the USD and GBP. Nowotny’s comments were given additional attention given his soft hawk stance and as such were interpreted as a change in view of the central banker. Furthermore, Nowotny’s comments are also of significance as they come ahead of next week’s rate decision and press conference. That said if the ECB were to expand their QE programme, many analysts including those at Goldman Sachs suggest that it may not be next week and is more likely to be in either December, or January 2016. 


Away from the EUR, the USD has seen volatility this week on the back of a mixed set of data. The USD initially saw substantial weakness after lower than expected retail sales (M/M 0.10% vs. Exp. 0.20%), which saw a number of investment banks lower their GDP forecast and also saw markets push back their expectations for a Fed rate lift off. However the greenback went on to pare some of its losses later on in the week on the back of higher than expected core CPI readings (CPI Ex Food and Energy Y/Y 1.90% vs. Exp. 1.80%). Looking ahead, next week sees a number of tier one data releases from the US including manufacturing PMI and housing starts, as well as the usual raft of Fed speakers, including Fed’s Yellen ahead of the next FOMC rate decision at the end of the month. 


Finally, GBP has spent the second half of the week firmly in positive territory after a rocky start, with data the main focus in the UK. GBP kicked off the week by falling against major counterparts after CPI (-0.10% vs. Exp. 0.00%) printed in deflationary territory, however clawed back its losses after mixed employment data (ILO Unemployment Rate 3Mths 5.40% vs. Exp. 5.50%, Average Weekly Earnings 3M/3M (Aug) Y/Y 3.0% vs. Exp. 3.10%), which showed UK employment at its highest level since records began in 1971. 


The notable highlight next week away from EUR, GBP and USD comes in the form of Chinese GDP, which is set for release on Monday, with many analysts suggesting that Q3 could see a print below 7% for the first time since 2009. This will be of particular importance to antipodean currencies, with AUD and NZD both seeing volatility this week as AUD ended its recent run of strength and NZD/USD reached 3 and a half month highs and saw a fall of RBNZ rate cut expectations on the back of better than expected CPI data.

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