GBPUSD: The pair saw a modest recovery

EUR/USD

With a lack of notable tier 1 data or economic commentary in the first half of the week, EUR/USD continued its recent decline by slipping below the 1.3300 handle with price action once again being directed by the policy divergence between the Fed and ECB. This was largely exemplified by the strong housing starts and building permits release on Tuesday and the hawkish FOMC minutes release on Wednesday. In terms of the minutes release, the USD was seen broadly stronger against its major counterparts after the minutes showed that members believe a relatively prompt move is warranted with diminished downside inflation risks & reduction to reinvestments after the 1st FFR hike. This saw the USD index break above 82.00 to print its highest level since Sep’13 with EUR/USD printing its lowest level since Sep’13. Despite a modest recovery following a stronger than expected German PMI report, geopolitical concerns dictated the state of play towards the end of the week as participants turned towards safer assets. Looking ahead, next week sees the release of the German IFO survey, jobs report and Eurozone inflation data. However, participants will also be placing particular focus on Draghi’s after-market appearance at the Jackson Hole symposium and whether the central bank head will provide any further clues on the future path of ECB monetary policy.

GBP/USD

The pair saw a modest recovery at the start of the week following comments from BoE’s Carney that the central bank would not wait for real wages to turn positive before raising interest rates, which subsequently led the pair to break above the 1.6700 level. However, these gains were negated upon the UK CPI release which came in at 1.6% despite expectations of 1.8% and saw the pair break below the 200DMA at 1.6675 ahead of the BoE minutes release. Against the grain of expectation, the minutes release revealed a 7-2 split on the MPC regarding the central bank interest rate policy, which subsequently saw participants bring forward their expectations of a rate hike by the BoE and thus saw a surge higher in GBP/USD. Nonetheless, these gains were swiftly erased following the post-FOMC strength seen in the USD which pushed the pair below 1.6600 as GBP/USD looks set to post its seventh consecutive weekly loss. Moving forward, next week sees an absence of tier 1 data from the UK, although participants will be looking out from any rhetoric from the BoE in the aftermath of this week’s 7-2 vote split as revealed by the BoE minutes.

USD/JPY

With a lack of notable economic commentary out of Japan, the price action for the pair was largely guided by the lack of inflammatory geopolitical newsflow which subsequently saw an unwind of the flight to quality seen at the end of last week, with USD/JPY breaking above its 200DMA seen at 102.40. The move to the upside was further exacerbated amid the move lower in USTs following the strong US data and hawkish FOMC minutes, which saw the pair prosper from favourable interest differential flows as USD/JPY broke above 103.00 to reach levels not seen since April. Thereafter, the pair was largely dictated by geopolitical events as participants awaited Fed Chair Yellen’s appearance at the Jackson Hole Symposium. Yellen’s speech painted a rather mixed picture with markets seeing a relatively muted reaction as the Fed chair gave very little away. Looking ahead, next week sees an absence of tier 1 data from Japan, therefore attention may reside stateside with US GDP, PCE Deflator, Chicago PMI and Univ. of Michigan Confidence all due for release.