After an eventful week which included several central bank meetings and the US Jobs report there is less for markets to get their teeth into this week. Despite the weak US jobs report risk appetite looks relatively resilient suggesting that the USD will struggle to make much headway over coming days.
Despite all of the events last week markets have been uninspired. Even the G20 meeting delivered little to be excited about with no further developments on how to rebalance the global economy and the USD’s role in the process. The lack of attention on the USD will leave it with little directional influence this week, with equity markets likely to the main driver once again.
One currency that may look a little better supported over coming days is the EUR. GDP data later in the week is likely to reveal an expansion over Q3 after several quarters of contraction as indicated by various PMI data. Although it will likely be led by inventories and exports rather than domestic demand it will nonetheless come as good news, albeit backward looking. Going forward growth in Europe is unlikely to match the pace of recovery in the US but for now the GDP data will be EUR supportive helping EUR/USD to gravitate around 1.50 and beyond.
Meanwhile, central banks may also do their part in influencing currencies given their differing stances on monetary policy. Although the Fed did not deliver any big surprises last week the FOMC statement will play for a softer USD as the currency looks to maintain its funding currency status for an “extended period”. In contrast the RBA hiked rates as expected and despite hinting at more gradual rate increases in the months ahead the AUD continues to stand to benefit. Going in the opposite direction the BoE increased its asset purchases but GBP avoided a significant negative fall out as the move is likely to be seen as the final step in the BoE’s asset purchase programme.
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