The central banks that meet this week to discuss monetary policy left policies unchanged in the Czech Republic, Poland, the UK and the eurozone. The ‘no change’ outcome was expected from all central banks, with the exception of Poland, which was forecast to cut rates by 25-basis points. The US dollar continued its advance despite the Republican Party dominating election results in mid-terms. The party took control of the House and the Senate, which will make it more difficult for the Democratic President Obama to push through legislation from his administration. The price of oil dropped to three-year lows stoking fears of global deflation. In the US these were offset by positive growth and employment figures, which continued to provide support for the US dollar. The dollar index jumped to a fresh four-year high this week. The biggest dollar gains were against a declining Japanese yen

Euro

The economic data released this week in Germany and across the eurozone continued to reveal a struggling economy. There were a couple of bright spots, but, nevertheless, price pressures remain weak globally with falling oil and commodity prices. Reports were released this week suggesting dissent amongst European Central Bank policy makers as the ECB head was criticized for lacking in consensus building techniques between the policy makers. Friction between policy makers could sour sentiment and undermine the central bank’s credibility. Final PMI surveys released this week suggest that growth remains on weak footing at the start of the fourth quarter.

Sterling

The Bank of England announced that it was leaving its monetary policy unchanged, in line with market expectations. Sterling dealt mixed data on its economy. A PMI manufacturing survey showed growth slowing, but not as fast as expected. Data supported the view voiced by a UK think tank this week that suggested interest rate increases will not occur until after the 2015 UK elections, so sometime late in the summer. This pushes back the timeframe for rate increases and helped to limit sterling’s upside potential this week.

US dollar

Data seen in the run up to the non-farm payrolls report suggested that positive forecasts would prove correct. Mid-term elections had very little impact on markets, since the outcome was more or less expected with the Republican Party taking control of both the Senate and House. The more upbeat employment figures helped push the US dollar index to fresh four-year highs. The dollar moved to seven-year highs against the yen, which continued to face selling pressure after a surprise decision to increase Japan’s monetary base was made last week by the Bank of Japan.

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