FX Market View #3

This week the markets again looked to the anticipated outcome of another central bank meeting. Moving across the Atlantic it was now the turn of the FOMC to inform on their market positioning, and provide assurances of a healing economy. The US Dollar firmed ahead of the meeting, and equities were unable to hold onto their gains from earlier in the week. This was not seen as a shift in market sentiment, instead it was a tone of consolidation. Although the rhetoric from the FOMC meeting was viewed by the market as dovish in tone, the FED revised its growth forecasts upwards.

By the end of the week the US Dollar traded with a firmer bias against the majors, however the trends from the emerging currencies were mixed between strengthening and weakening. The equity, energy and interest rate markets generally strengthened following their initial sell-off. Any concerns of upcoming pricing pressures are generally viewed as being transitionary and therefore unlikely to be inflationary. In these past weeks the major central banks have met and their general messages are aligned. Continued monetary support for their economies remains strong, which leans positively towards global growth forecasts to be revised upwards by the OECD.

The data highlights for next week will start with the wage growth data in the UK, released on Tuesday. As the UK has positively handled the challenges of administrating the vaccine distribution, the data will likely reflect this success. A day later the preliminary Purchasing Managers Index reports in the US, along with the data on personal consumption and income will be reported. This data will be keenly followed by investors seeking confirmation of a near-term recovery of the US economy. On Thursday the Swiss central bank will shed light on its interest rates policy, as meetings from the heads of the BOE and ECB might reveal information on potential future rate hikes.

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