Dovish Fed and BoE minutes weigh on USD and GBP, with next week's highlights including US retail sales, UK unemployment and German ZEW survey

Overview

Today’s notable highlight has come in the form of the minutes from the latest FOMC meeting, which were deemed by many to have a more dovish than expected slant. The FOMC minutes showed that several Fed officials had forecast a rate hike in 2015 but also said it would be prudent to await further clarity on the economic outlook. Members also highlighted rising downside risks, with Chinese volatility and slowing global growth. Finally, some were afraid of losing credibility should they raise rates prematurely; which was reiterated by Fed watcher Hilsenrath. This saw market participants push back expectations of a Fed rate lift off, with FFR futures now pricing in March hike, and as such saw downward pressure on USD.

The USD weakened in the immediate aftermath of the release, as well as throughout Friday, with EUR one of the main beneficiaries, along with commodity currencies such as AUD, gaining directly against the USD and also strengthening due to higher commodity prices, with the weaker USD bolstering WTI crude futures and spot gold above the USD 50 and USD 1150 handles respectively.

Separately, upside in GBP/USD was capped this week by a dovish rate decision and minutes which showed, that while the vote remained 8-1 in favour of keeping rates on hold, members of the MPC see the short-term inflation outlook as weaker than they had forecast in August and expect CPI to stay under 1.0% until spring 2016. This comes after strength in GBP from earlier in the week on the back of M&A related flow on the back of a potential deal between SABMiller and AB InBev.

Looking ahead, next week may get off to a quiet start as a result of the Columbus Day holiday, while the key focus later on in the week will be a number of US data points including the likes of US retail sales, Philadelphia Fed business outlook and University of Michigan sentiment. Across the Atlantic, the most notable event from the UK comes in the form of unemployment data, while Europe sees the release of the German ZEW survey.