The main focus this week was once again on central banks. The US FOMC stirred currency markets by sharply lowering the US growth forecast and by maintaining what was perceived by markets to be an accommodative stance in its policy outlook. In the eurozone, economic data continued to slip, while UK policy makers continued to sound less accommodative despite inflation data coming in at four-year lows.
Euro
The euro managed to steady this week when the US FOMC remained accommodative and eurozone economic data was less damaging to non-existent this week. A ZEW German investor sentiment survey dropped, but the euro failed to collapse given a rise in the current conditions component which rebounded and helped to offset the headline figure. Final HICP figures were left unrevised, which helped remind investors at the beginning of the week the deflationary pressures troubling the economy. The single currency finished the week higher less on the back of euro strength, but more on the back of dollar weakness.
Sterling
Sterling rose to fresh five-year highs against the US dollar, but had trouble holding onto 19-month highs against the euro. Comments from Bank of England policy makers offset weaker economic data that was released this week. In the prior week, Governor Carney told markets to expect rate increases sooner rather than later. Later in the week Weale, said that the jobs market could be tighter than current data suggests. The less accommodative comments came amidst a weak productivity report from BoE, and less hawkish minutes. Furthermore CPI fell to levels not seen in four-years and retail sales declined. Soft price pressures and unsustainably strong consumer demand have been primary concerns voiced by the central bank. Nevertheless, the hawkish comments from policy officials overshadowed data and minutes this week and supported sterling.
US dollar
The FOMC maintained its interest rate policy and cut its Quantitative Easing program by $10 billiob taking it to $35 billion per month in expansive policy purchases. The outcome was widely expected, but markets reacted to the central bank’s downward growth revision and saw the tone as dovish. What was missed was that on balance rates at the end of 2015 were seen slightly higher this month than in March when they were last forecasted. Furthermore the Fed said that it remained committed to price stability and attaining full employment. The projections for the unemployment rate were actually lowered, while evidence of upside price pressures exerted themselves this week. Oil prices rose to nine-month highs as a result of the crisis in Iraq, while consumer prices in the US saw their biggest gains in one year. Once the full statement and recent economic data is digested by markets there could be a chance to see dollar losses reversed.