The quiet before the storm?

Over the course of last week, GBP/USD experienced extensive movement as the UK’s inflation rate printed well below forecast levels, and the Swiss National Bank (SNB) caused more than a stir having dropped exchange rate controls. Sterling initially fell against the dollar after the pace of inflation in the UK was shown to have slowed to a 14-year low of 0.5%. However, quick assurance from the Bank of England Governor, Mark Carney, and Chancellor, George Osborne, regarding the positive implications of softer inflation saw the pound recover. GBP/USD traded in a narrow range on Monday, hanging around the 1.5143 (IB) level as markets calmed following last week’s turmoil. GBP/EUR is currently trading in the region of 1.3045. GBP/USD may struggle to hold above the 1.50 (IB) handle in the week ahead should the fundamental developments coming out of the UK economy curb the Bank of England scope to normalise monetary policy. Sterling failed to make a notable advance against its US peer as the Swiss National Bank decision to remove its cap with the euro saw investors move to safe-haven assets. This has had a positive effect on the US dollar. Eyes will be on tomorrow and the BoE to see if there is any shift in views.

ECB President Mario Draghi’s grand plan to stimulate Europe’s sluggish economy by purchasing asset-backed securities may be delayed by red tape, it was reported yesterday. It was widely expected that Mr Draghi would announce on Thursday full details of the ECB's intention to roll out more details regarding his balance sheet expansion. The ECB President targeted asset-backed debt because he said the ECB felt it would stimulate Europe’s economy by allowing banks to transfer risk to investors and encourage lenders to offer more credit to companies and finally give the Eurozone a kick start. GBP/EUR extended its decline to over 0.4% and traded just below 1.3033 during the course of London trading. The euro also advanced by around 0.54% against the Greenback. Thursday will be a big day in terms of forecasting where the single currency is heading; as it stands now, everybody seems tilted towards betting against the euro. Today sees this week’s first stage of top tier data in the form of German Zew Economic Sentiment which is due out at 10.00 today. It is widely thought that QE is priced in to the market and that there shouldn't be too much volatility. That being said, markets are becoming very hard to predict of late.

Monday brought a day of silence from the US as those across the pond celebrated Martin Luther King day. As a result, no economic data was released and thus the buoyant US dollar traded within current ranges versus its most traded counterparts. Against Sterling, the dollar finished the London trading session where it started at 1.5140 (IB). Meanwhile, against the euro, we saw the pair gradually lose 0.5% in favour of the single currency ahead of the likeliness that traders are gearing up for the QE announcement from the European Central Bank on Thursday. Once again, today we do not have much to look to on the economic calendar but based on trends, even a lack of positive news doesn't falter the ever strong dollar. During the early hours of this morning, Chinese GDP figures were released, resulting in further strength for the Greenback and sending GBP/USD sub 1.51 (IB). Given the apparent unbalanced nature of some emerging economies towards the back end of 2014, and taking into account the dollar's safe-haven status – positive fundamental data is welcomed, particularly from the likes of China, who had a boost to GDP in the early hours of this morning. As a nation, China hold a large dollar treasury reserve and that can give the currency an added boost. Looking at the broader picture, the likelihood is that the dollar will continue to firm up and put the euro, in particular, under further pressure, now that the Fed have given a loose timeline as to when interests rates could be raised and staving off fears of lower inflation preventing the economy from continued improvement. Many analysts feel that, should the US avoid an ailing export market from a stronger currency and oil prices continue to fall/find stability at current values, the momentum will be maintained.