This week’s focus was expected to be placed firmly on the footsteps of the US central bank and its policy statement. The outcome of the policy meeting and the run-up to it were almost completely overshadowed by developments in Russia. The rapid decline in the price of oil sparked a rout of the ruble and forced the currency to trade at record lows against the euro and the US dollar. Those events triggered selling pressure on emerging market currencies, while at the same time propped up safe haven currencies such as the Japanese yen and Swiss franc. The gains were not welcomed in Switzerland and the Swiss National Bank was forced in a surprise move to turn to negative interest rates. In the meantime, the US FOMC left its policy unchanged as expected, but altered its communique to suggest a normalisation period could occur at the meeting in April or thereafter. In Europe, Greek elections and dovish comments from policymakers were offset by economic data in Germany and across the eurozone that help improve the outlook for the euro area.

Euro

The euro rose to a two-month high against the Swiss franc when the Swiss central bank cut interest rates into negative territory. A climb to one-month highs against the sterling was short-lived after UK growth and labour data came in well above forecast. The euro ultimately moved to one-week lows against the sterling. The euro gave up ground against the yen, as well early in the week, as safe haven demand increased. Against the US dollar, however, the euro moved back towards one-week lows. While economic data was more upbeat in Germany and the eurozone, it was not strong enough to completely offset dovish comments from European Central Bank policymakers and heightened fears of political uncertainty in Greece.

Sterling

The sterling faced a volatile week of trading. Initially the currency suffered heavy losses with the release of CPI data, which allowed European importers one last chance to hedge against a sterling rise. CPI dropped to 1.0 per cent, which was the lowest rate of inflation seen since 2002. The data initially pushed back expectations for rate increases. This view shifted quickly, however, after the Bank of England Governor made upbeat comments on the outlook for growth and inflation. Sterling quickly rose one-week highs against the euro and took back earlier losses against the US dollar.

US Dollar

The economic data that was released this week was supportive of the comments made by FOMC Chair, Janet Yellen. The FOMC statement acknowledged a lack of strength in the housing recovery. That was seen in weaker than expected housing starts figures as well as a dip in builder sentiment.

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