Unusually, it wasn’t macroeconomic fundamentals that drove major currencies

Enrique Díaz-Álvarez09/May/2016Currency Updates

G10 currency moves became somewhat disconnected from macroeconomic fundamentals last week. This was particularly clear on Friday when the US Dollar managed to shrug off a weaker-than-expected payroll report and finished the week up versus European currencies. Against emerging market and commodity currencies the Dollar increased even more significantly.

This week we expect a degree of volatility ahead of the Bank of England May report on Thursday. It’s unlikely that there will be any major news but as usual investors will be poring over the meeting minutes and inflation report for the Bank’s view on the UK’s economic performance.

We’ve observed that international businesses are currently concerned about for how long the current EUR/USD range will hold. The other major uncertainty in the markets at the moment is Britain’s EU referendum in June, which is preventing some businesses from making investment and recruitment decisions.

Last week we saw a lot of interest from our clients in buying Swiss Francs and selling Euros above the 1.10 mark, which seems to be based on the belief that the 1.115 highs from February will hold.

Major currencies in detail:


Given the disappointing economic news out of the UK last week, the resilience in the Pound is noteworthy.

The key UK PMI business sentiment indicators all surprised to the downside, with the composite dropping a full 1.4 points to 51.9, the lowest point in the three-year-old series. This is a clear indication that business confidence is being severely impacted by EU referendum uncertainty. However, Sterling managed to finish just 0.5% down against the Euro.

Macroeconomic news is becoming less important for Sterling movements and, instead, political and monetary policy uncertainty are dominant.

It will be very interesting to see what reaction, if any, the monetary policy committee has to this recent weakness in UK data and whether the inflation report will still predict the consumer price index to overshoot the BoE’s forecast, as it did in February.


The main Eurozone news last week was the relatively downbeat Economic Commission forecasts on Monday, which put an end to the incipient Euro rally and sent it down for the rest of the week.

This week, Eurozone industrial production comes into focus on Thursday, followed by the first revision to first-quarter GDP growth on Friday. We expect both to be consistent with moderate but sustained growth.

With this in mind, we expect the Euro to mostly trade in reaction to US and UK economic and policy news as well as the Eurozone’s first review of the Greek programme on Monday. As in the UK, we expect political risks to impact Euro trading now that policy and economic fronts are relatively quiet.


A relatively weak US labour report left a sour taste after a week that had seen mostly positive economic news.

While headline job creation disappointed, the report did have a bright spot in that wage gains rebounded to 2.5% on the year.

The key now is how this may impact the Federal Reserve’s outlook. Federal Open Market Committee members may choose to focus on the modestly weaker pace of job creation or on the more positive news of wage increases.

FOMC members Evans, Mester, Rosengren and George all be speaking this week. By the end of this week we should have a much clearer view of the chances of a June US interest rate hike and the short-term direction of the US Dollar.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.