Global FX: Mostly Flat

EUR/USD
The pair failed to benefit from a positive revision to Italy’s government bond rating by Moody’s and settled the week little changed, as the release of weaker than expected macroeconomic data, together with a firmer USD dampened demand for the joint bloc currency. In terms of EU-specific commentary, ECB's Nowotny said the ECB will not cut deposit rate without cutting the benchmark negative and that the deposit rate is "one potential element". At the same time, ECB's Weidmann said sovereign debt purchases would constrain the central bank via political pressure. Also of note, on Friday, analysts at BNP Paribas said that they expect the ECB is to start QE with EUR 300-500bln worth of bond purchases in H2 2014 to combat deflation risks, adding that Euro government bond markets will probably start pricing in ECB QE from now on.

GBP/USD
Similarly to EUR/USD, the pair finished the week little changed, as the release of worse than expected jobs and retail sales reports, was offset by GBP supportive M&A related flow (Vodafone/Verizon). As expected the key source of direction for price action was the employment report from the UK, which went against the grain of recent readings and showed a rise in the unemployment rate from 7.1% to 7.2% which subsequently sent the pair lower. This release came alongside that of the BoE Minutes which as expected showed the MPC were unanimous in voting against a change to the bank rate or APF and thus did little to influence price action. However, one surprising element of the release was that Governor Carney did not ask MPC to vote on new forward guidance policy on Feb. 6 despite speculation to the contrary. Also of note, this week saw the release of the latest CPI data, with the Y/Y reading coming in at is the lowest for the figure since November 2009.

USD/JPY
The pair settled the week higher, supported by a firmer USD and also BoJ’s decision to double the scale of its Growth Supporting Funding Facility and Stimulating Bank Lending Facility with the main growth funding program increased to JPY 7trl (both lending schemes extended by 1 year beyond the March 2014 deadline). This week also saw the release of the latest trade balance report, which showed that the country endured a record trade deficit in January as growth in exports spurred by a weak JPY was far outstripped by a surge in import costs. Also of note, the head of the Japanese government advisory panel said that the public pension fund GPIF should cut bond holdings to 40% within 2 years. The panel head went on to say that the fund should put half its assets in stocks and that the GPIF should increase its annual return target to 5%.