Initially, currency markets reacted to continued fallout from better than expected US non-farm payrolls data. The brighter picture of the US jobs market prompted economists to bring forward interest rate increases for the first time since the Great Recession. The global growth outlook continued to get a boost with the release of Chinese trade figures that showed the surplus shrinking, but also exports to the US picking up. As risk sentiment improved so too did the euro’s fortunes despite weak economic data. Industrial output in Germany, Italy, and France turned sharply lower calling into question the strength of the economic recovery in the eurozone. The CEO from Airbus cried out to policy makers demanding a 10 per cent depreciation of the single currency. Even the UK was not spared weak economic data in the form of output and trade figures.
Euro
The euro traded in tighter ranges this week against the US dollar. There was only one exception to weak economic data released this week in the eurozone. A Sentix sentiment survey of investor sentiment showed a sharp rise on the heels of the action taken last month by the European Central Bank. The rest of the economic data continued to reveal weak growth. Several policy makers made comments this week, but the head of the central bank, Draghi, continued to talk about the importance for governments to put through reforms that will make economies more competitive.
Sterling
Sterling saw more two-way trade than usual this week. Economic data was the catalyst behind sterling’s moves. Economic data in the UK was being taken for granted until this week. Data has recently painted a brighter picture for the economy which left traders flat-footed when data completely failed to get near to estimates. The decline in industrial output was related to the sharpest drop in manufacturing output since January 2013. Trade figures showed the deficit swelling as exports to the euro zone slowed, possibly on the back of a stronger sterling. Speculation in the currency cross could have seen some support based off this M&A related news. The BoE announced this week that monetary policy would be maintained.
US dollar
The sole focus this week in the US was the FOMC minutes, which disappointed. While the minutes sounded slightly more hawkish than Janet Yellen may have sounded at her press conference last month, the release did not add clarity to a timeframe for higher borrowing costs. However, the minutes did suggest that the central bank will be through conducting quantitative easing measures by October.