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Central bank meetings to drive currency volatility as summer lull ends

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5 September 2016

Enrique Díaz-Álvarez

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

While the US Dollar held its own despite a modestly weaker labour report, Sterling put on a very strong show last week.

ositive data surprises post-Brexit referendum are forcing a clean up of bearish Sterling bets and, for now, the path of least resistance for the Pound is upwards.

Central banks will be firmly in focus this month, starting with this week’s unusually rich slate of meetings. No fewer than four G10 central banks meet this week: the European Central Bank, the Reserve Bank of Australia, the Bank of Canada and the Riksbank in Sweden.

By far the most important is the ECB meeting on Thursday, of course. No action is expected but there will be plenty of communication for markets to mull over, including revisions to key inflation and growth forecasts and President Draghi’s press conference.

Major currencies in detail:


Macroeconomic data will provide a key test for the sharp Sterling rally of the past few weeks.

Markets will look to the key August services PMI index for confirmation of the sharp rebound seen in its manufacturing and construction counterparts. Should the data surprise to the upside, there will be additional upward pressure on the Pound.

Traders are still holding record levels of Sterling shorts and a PMI services print above 50, which signals expansion, could force many of them to throw in the towel and cover positions.


Inflation data disappointed yet again in the Eurozone last week.

The core index, which excludes the volatile food and energy components, fell to 0.8% over the past year. This key gauge has been stuck at or below 1% every month except one since 2013.

This data will put further pressure on the ECB to act. While we do not expect this rather inertial institution to act this week, we should see clear indications that an increase in the quantitative easing target is on the cards this year.


The August labour report out of the US was a slight disappointment last week.

The headline number was a bit lower than expected, at 151,000 net jobs created. However, this shortfall was more or less made up by prior revisions. More significant is the relative weakness in earnings, up just 0.1% in the month and 2.4% for the year. Further, the average weekly worked hours ticked down and unemployment ticked up.

However, the three-month average headline number is still quite strong at 232,000 jobs per month, so we do not think this report changes the outlook materially.

The news is likely to strengthen the hand of FOMC doves and therefore we now expect the next rate hike to be delayed until December. Tomorrow’s speech by San Francisco Fed President Williams will provide key insight into the Federal Reserve’s reaction to the latest job market numbers.

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