Global FX: EUR/USD Rally

EUR/USD
An easing of political tensions in the Ukraine and the ECB’s decision to keep rates on hold saw the pair finish the week with significant gains and soar through the 1.3900 level to print the highest reading since 2011. At the start of the week, participants turned to safe haven assets amid news that the Russian Parliament voted unanimously to authorise military deployment in the Ukraine. However, tensions were then destabilised upon reports that Russian President Putin ordered troops engaged in military operations to return to their bases. This paved way for an increase in risk on sentiment and thus lifted the pair from the earlier lows. The main focus for this week was upon the ECB rate decision which saw the central bank keep rates on hold and thus EUR strength was observed amid an unwinding of dovish bets. One interesting point from the release was that against the grain of speculation, ECB’s Draghi refrained from ending the central banks sterilisation program which saw a short-squeeze for EUR and consequently added to the pairs earlier gains. Despite a better than expected Nonfarm Payrolls reading from the US, which saw the greenback claw back some territory against EUR, it was not enough to pare EUR/USD’s earlier gains.

GBP/USD
In a similar manner to that of EUR/USD, despite the pair seen lower earlier in the week, a receding of political tensions upon the reports of Putin withdrawing troops from the Ukraine paved the way for a recovery for the GBP against USD. With little else in the way of macroeconomic commentary or tier 1 data from the UK in the early stages of the week, this proved to be the main source of direction for price action. On Wednesday GBP was one of the notable outperformers for the session amid an amalgamation of the de-escalation of political concerns and a stronger UK Services PMI, which in combination with Monday’s PMI Manufacturing figure added to the positive sentiment for the UK economy. The key risk event for the week came in the form of the BoE Rate decision, whereby the central bank made no adjustment to their monetary policy program, although did see a knee-jerk move higher for the pair. Despite the 175K print for the Nonfarm Payrolls reading, GBP’s gains earlier in the week were enough to ensure the pair finished trade higher for the week.

USD/JPY
The pair was weighed upon in the early stages of the week amid the aforementioned flight to quality, with JPY one of the main beneficiaries across FX markets. However, USD then managed to reverse these earlier losses against JPY as participants appetite for risk increased, which was a theme that continued throughout the first half of the week. JPY saw further weakness following commentary from Japan’s Health Ministry panel who recommended the GPIF move away from passive investment and domestic bond and thus saw support amid an increase in risk sentiment. On Friday these gains were then further extended upon the better than anticipated jobs report from the US which led the pair above the key psychological 103.50 level.