Global FX: Weekly Wrap

Even though a number of ECB members continued to reiterate that the ECB remains in accommodative policy mode, the pair finished the week with solid gains and crucially above the key 1.300 level after the governor of the Federal Reserve said that current unemployment of 7.6%, if anything, overstates health of US labour market. Consequent USD weakness, which was the primary reason for the upward traction this week, overshadowed renewed tensions in the peripheral euro zone, where PO/GE 10s spread widened to over 600bps for the first time since Dec-12 after the Portuguese government noted that the Troika has delayed their quarterly evaluation to late August. More so, EUR weakness also failed to materialise amid reports that ECB's Praet has proposed introducing ECB meetings' minutes to pre-empt misunderstandings in interpretation of central bank's decision. Also of note, S&P lowered Italy's sovereign credit rating to BBB from BBB+; outlook negative, however the attention remained on the Iberian Peninsula. On the positive note, Germany’s AAA rating was affirmed at S&P with stable outlook. S&P also revised Ireland sovereign credit outlook up to positive from stable; current rating is BBB+.

GBP/USD
Similarly to EUR/USD, the pair finished the week with solid gains, which were largely driven by renewed USD weakness after Fed’s Bernanke sought to downplay the recent improvement in the labour market, which in turn prompted market participants to scale back QE tapering expectations. There was little in terms of UK specific commentary and the pair remained a by-product of the risk on/off sentiment which is also expected to remain a driving force behind the price action going forward.

USD/JPY
The pair finished the week lower amid a weaker USD and also another set of less than impressive macroeconomic data. Also, the BoJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base. The statement from the BoJ noted that the decision on monetary base target was unanimous and the central bank will make policy adjustments as needed.