Weekly currency news: central banks coming into play
The dollar suffered last week, after the Federal Reserve showed a dovish stance at the semi-annual testimony to the Congress, and dropped further on Friday following a weaker than expected U.S. CPI data, which increases concerns that the Fed might reassess its plans of three interest rate hikes for this year.
The euro advanced further, buoyed by dollar weakness to hit its highest levels in 17 months, while the pound managed to pare earlier losses caused by dovish comments by BoE officials, and closed the week at 10-month highs.
This week, we will be especially attentive to the monetary policy decisions of the European Central Bank and the Bank of Japan, which might set the near-term direction for the euro and the yen.
Currencies last week
- EUR/USD: advances to fresh 17-month highs near 1.1500
- GBP/USD: at 10-month highs above 1.3100
- EUR/GBP: rejected at 0.8950, returns to 0.8800
- USD/JPY upside limited at 114.50 resistance area
Main events this week:
The U.S calendar will be light this week. The most relevant indicator will be June’s housing starts and building permits. Construction activity has contracted in four of the last five months, which is likely to weigh on the second quarter´s growth. Another disappointing reading in June might add negative pressure on the dollar.
The Eurozone calendar opens on Monday with the Consumer Prices Index figures, which are expected to confirm a 1.3% year-on-year increase seen in the preliminary estimations.
On Tuesday, the ZEW survey will show the sentiment of institutional investors about the present economic situation and the near-term outlook, an indicator that might ave a moderate impact on the euro.
The most relevant event for the euro will be the ECB monetary policy decision, on Thursday. The bank is expected to leave its benchmark rate unchanged at 0%. However, ECB president, Mario Draghi has started to suggest that the bank will start reducing its massive bonds buying program which has pushed the euro to multi-month highs. Any new info on that matter is likely to increase euro strength.
In the UK on Tuesday, we will be attentive to the Consumer Prices Index data. The pound slump has boosted inflation to levels well above the 2.0% target rate of the Bank of England, adding pressure on the bank to start hiking interest rates. Another uptick on the CPI might help the pound to extend its recovery.
In the Japanese calendar, on Thursday, the Bank of Japan will release its monetary policy decision. With interest rates expected to remain at all-time lows, the main interest will be on the banks’ plans to exit their ultra-loose monetary policy. Comments on that direction will be supportive for the yen.