ECB and Fed remain in focus as December looms, while next week sees CPI data out of both the UK and the US

Overview

This week has seen relatively subdued price action in FX markets amid a light data slate and subdued newsflow on Wednesday during the Veterans’ Day holiday. Much of the newsflow this week has focussed on the divergence in central bank policy, with the ECB appearing increasingly likely to ease monetary policy further, either in the form of a cut to the deposit rate and/or through an expansion to their quantitative easing programme. While consensus amid market participants appears to be that a December Fed rate lift off is on the cards. Despite a number of comments this week indicating that the above central bank action could take place, the price of both the USD and the EUR ends the week relatively unmoved due to market participants pricing in the events previously, in the wake of the US nonfarm payroll report and ECB meeting respectively.

Although the central bank divergence between the US and Eurozone did not see a dramatic influence on price action in EUR and USD this week, the dampened sentiment coming from concern regarding Europe, combined with similar concerns in China have seen somewhat of a flight to safety, with JPY and CHF both benefiting, with the latter briefly reaching parity against the USD.

Away from the ECB and Fed, the notable outperformer this week has been AUD, with the antipodean currency benefitting from a stellar jobs report (Employment Change (Oct) M/M 58.6K vs. Exp. 15.0K) and as such shrugging off volatility seen in commodities and a continuation of the questions regarding the Chinese economy.

Looking ahead, next week’s highlights come in the form of CPI data, with inflation reports scheduled for both the US and the UK. Away from inflation, next week also sees the Philadelphia Fed and Empire State manufacturing surveys as well as minutes from the FOMC’s 28th Oct meeting and a host of FOMC speakers; as such, the potential for a Dec rate lift off from the Fed could remain in focus, as participants look for further confirmation or doubts regarding the lift off date.