Discussion and Analysis by Charles Porter:
Part One: The Week in Review
Currency movements this week have been distorted by both opportunistic and defensive speculative reshuffles. Strategic positioning has arisen from the anticipation and sentiment that pivotal currency market actors have adopted preceding this afternoon’s Jackson Hole symposium and impending Brexit negotiation round. Such movements have led to a moderately opaque weekly impression. However, several of this week’s significant events have had discernible and meaningful impacts upon international currency markets.
The Euro gained strength following the ECB president’s speech. This speech strengthened the Euro vis-à-vis the Pound and Dollar due to Draghi’s evasion of the Euro’s sustained year to date revaluation. Similarly, the praise he gave within the academic-style speech to quantitative easing provided a positive environment upon which the Euro rallied. Importantly, this signalled to markets that the Euro would not be forced back down to promote Eurozone exportation.
On the back of such events the Euro would go on to close at the highest level vis-à-vis the pound in almost eight years. Moreover, this appreciation reversed losses against the dollar that the Euro had experienced twenty-four hours earlier. The dollar’s unanticipated appreciation on Tuesday pervaded across international currencies. During this episode, the dollar strengthened by in excess of 0.5% whilst the GBP/EUR rate remained constant. Similarly, losses against the Euro were significant, yet slightly milder, at a little over 0.4%. The dollar’s exchange rate to the Rand also showed considerable volatility with the dollar appreciating considerably.
Sterling’s performance on the back of a revised UK GDP data release was also perceptible. However, in line with expectations, Sterling’s revaluation was small as markets equilibrated to price previous risk out. The Japanese Yen saw insignificant and imperceptible fluctuations following last night’s Consumer Price Index inflation rate publication.
For now, markets look towards the impending Jackson Hole speeches from Janet Yellen and Mario Draghi. Part Two of this article identifies our expectations regarding the Wyoming symposium in addition to the events that we will be looking closely at following the bank holiday.