US and Canadian markets were closed on Monday for a holiday. The lack of holiday-related liquidity helped to trap currency markets in relatively tight ranges in major currencies. Those ranges were given further support by the number of central banks meeting this week to discuss monetary policy, not to mention the uncertainty provided by the developments in the Russian/Ukraine conflict. The Swedish central bank, the Bank of Canada, the Reserve Bank of Australia, the Bank of England, the European Central Bank, Bank of Japan and the National Bank of Poland all met this week to discuss monetary policy.

Euro

The euro continued to slide against most major currencies, with the main exception being against sterling. The economic data released continued to support the view that the central bank needs to do more to prop up the economy and save it from a deflationary spiral. There are few who will argue that the eurozone economy is not suffering and on the verge of falling back into recession. Weak demand will weigh on prices, which the central bank is mandated to keep near 2.0 per cent. Inflation is currency at a five-year low of 0.3 per cent, which is why many expected the ECB to take some form of policy action this week. The bank cut its main rate to 0.05 per cent, while the discount rate it moved from -0.10 per cent to -0.20 per cent in an effort to fight deflation.

Sterling

Sterling dropped to six-month lows against the US dollar, while dropping to two-week lows against the euro. The decline in the currency came despite strong economic data. The CIPS PMI service sector survey rose to levels not seen in eight months, while the construction sector saw the pace of growth expanding at a rate not seen in seven months. The manufacturing sector saw its growth levels drop to lows not seen in 14 months. The Bank of England’s rate announcement was even overshadowed by polls showing a more uncertain outcome of the Scottish referendum, which is scheduled to take place on September 18.

Dollar

The economic data released in the US, as well as the Federal Reserve’s ‘Beige Book’ report, pointed towards progress in the domestic economy. Construction spending rose to levels not seen in five years. An ISM manufacturing survey rose to highs not seen since August 2011. More encouraging was the news that a new orders component of the manufacturing sector rose to 10-year highs. The Federal Reserve’s ‘Beige Book’ noted that all 12 districts grew at a moderate pace, which is something that the central bank will consider when it meets next on September 18. Employment figures continue to send mixed signals, but for the most part policymakers agree that a recovery is under way.