The outlook for this week was limitless with the FOMC, Swiss National Bank and Norges Central Bank all holding policy setting meetings. Not only was monetary policy on the line, but the Scottish referendum to stay in the UK, also dominated market attention alongside the Bank of England minutes and economic data. Volatility in currency markets increase rapidly as the uncertainty surrounding the outcome of all the events mentioned above climaxed. At the end of the week, the dollar moved to six-year highs against the Japanese yen while the dollar index moved to four-year highs. Sterling saw strong gains in the run-up to the referendum with the view that a No vote was slightly ahead in exit polls, suggesting Scotland would vote to stay in the union. The FOMC announced that a ‘considerable time’ would pass between the end of the Fed’s Quantitative Easing programme and the first rate increase. Nevertheless, focus on a moderately expanding economy and a detailed plan to exit the Fed’s QE programme next month triggered a dollar rally.

Euro

The euro fell to fresh 14-month lows against the US dollar and two-month lows against sterling this week, while jumping to four-month highs against the yen and nearly one-week highs against the Swiss franc. The various euro movements were driven by policy outlook and economic data. In the eurozone, German investor sentiment figures fell to lows not seen in two years, but was better than forecast. The weak conditions were based on the uncertainty of the Scottish vote as well as geopolitical issues in the Ukraine. Sentiment may have been worse off if it had not been for the ECB loosening its monetary policy in September.

Sterling

Sterling’s fate hinged upon the outcome of the Scottish vote for independence. With Scotland confirming to continue making part of the UK, Sterling rose to a two-year high against the euro and a two-week high against the US dollar. Sterling had been clobbered in the run-up to the referendum because exit polls had shown opposing parties running neck-in-neck. But as the No vote began to gather strength, confidence began to return.

US dollar

There will be a ‘considerable time’ to wait between the end of the Fed’s QE program and any increase in the Fed Funds rate. That did not upset the dollar bulls, however. Rather currency traders latched onto the detailed plan for an exit strategy of the Fed’s QE programme. The programme will end next month. Furthermore, of the 17 Fed officials, 14 v 12 thought a rate increase could occur at the June meeting next year. The outlook gave currency traders a slightly more optimistic view on higher interest rates in the US, which helped support the US dollar. Economic data did not disappoint. A builder sentiment survey jumped to five-year highs, while a regional manufacturing survey also showed the pace of growth expanding.