The focus this week in currency markets was clearly on the very historic US FOMC meeting. The US central bank announced that it was ending its quantitative easing programme, which was in line with market expectations. The upbeat US economic data coupled with weakening eurozone figures helped to push the US dollar back towards year to date highs. The Riksbank announced this week that it was moving to zero interest rate policies and fears of deflation across Europe rise.
Euro
The European Central Bank’s stress tests and asset quality reviews conducted upon Europe’s largest banks had little lasting impact on currency markets. The results were more or less in line with what markets had expected the fact that the news did not hold any surprises was actually positive for the euro, at least up until German sentiment figures were released. The German IFO business sentiment index experienced its 6th consecutive decline and fell to two-year lows. This was discouraging for the month of October, the same month that saw a manufacturing survey avoid slipping into contraction territory. The end-of-week flash HICP estimates are likely to influence the ECB’s policy meeting next week. The German inflation figures fell below prior month’s and did not bode well for the eurozone data. Softer price pressures will add to the argument for more measures to be taken by the ECB, which will continue to weigh on the euro.
Sterling
Sterling could not stand up against an advancing US dollar, but was able to maintain levels against the euro this week. The weaker growth figures for Q3 have prompted investors to call into question the likelihood of any tighter policy action. Indeed, mortgage approvals data fell to lows not seen since September 2013 in data released this week. On the other hand, there was surprisingly good news from a CBI distributive trades survey released this week that showed the fastest pace of sales in three years. The consumer demand figures stood in contrast with the ONS retail sales figures seen earlier, which showed a decline in demand.
US dollar
The ‘jobs hard to get’ component of consumer confidence in the US dropped to levels not seen since the beginning of the financial crisis. That helped push the broader consumer confidence index to highs not seen since October 2007. The report supported the FOMC’s statement seen later in the week which seemed to be a bit more optimistic on the jobs market. The FOMC said that underutilization of labour resources is gradually ‘diminishing.’ The central bank went on to say that the broader economy was experiencing ‘sufficient strength.’ The comments were seen as more optimistic and less dovish, which helped to push the dollar higher even though they also said that interest rates would remain low for a considerable time. Further supporting the US dollar was Q3 GDP data that was released above forecast.