USD ends the week a forerunner

The end of last week saw GBP squarely on the defence as UK inflation was downgraded along with growth forecasts, and the BoE had a change of tack in overall sentiment. Predictably, interest rates were kept as they are, and GBP was also seen to hit its lowest level against the US dollar since April this year. With a slowdown in emerging markets, the global inflation outlook was also seen to weaken, too. On the flipside, Manufacturing PMI was seen to increase more than expected – 55.5 as opposed to 51.3 – although PMI for construction and services remained flat. UK manufacturing was also seen to come in above what was expected at 0.8% as opposed to 0.4%.

This week, data out from the UK includes macro‐economic fundamentals by way of average earnings index and claimant count changes, then we’ll see Mark Carney discuss the latest inflation report which all eyes are usually transfixed upon for clues about potential changes to monetary policy.

There wasn’t much out of Europe last week in terms of data, so EUR strength was left at the mercy of events abroad. Gains were seen against the pound towards the end of the week, but the same couldn’t be said versus the dollar, against which the euro struggled and fell to the lowest level since April. With Mario Draghi also seen to defend his commitment to keeping inflation below 2% ‐ a measure that might mean more QE or similar stimulus measures. Germany was also seen to disappoint when its factory orders came in below forecasts and that, of course, is a cause for concern with Germany being the powerhouse of Europe.

Again this week, there won’t be much data released aside from prelim German GDP (quarterly) – the hope is that, given the poor run of data from the Germans lately, this GDP figure will be seen to be on the up and up. Midweek we’ll also see Draghi talking more about QE and potential monetary stimulus – one to watch, of course.

The dollar was probably the overall winner as it saw dramatic gains over the course of the week. Nonfarm employment change data showed a spike from 137,000 to 271,000 when only 181,000 was expected – a big positive for the dollar. Non‐manufacturing was also seen to increase, and ADP employment data for last month came in stronger than expected. Speculation, based on some utterance by Janet Yellen, was rife that next month might be ripe for the much expected interest rate rise.

This week will also be data‐rich for USD as we see unemployment claims, monthly core retail sales, monthly PPI data, and University of Michigan consumer sentiment. Yellen will also speak once more on monetary policy implementation which we’ll see on Thursday.