Talking Forex: GBP/USD Finishes Week With Modest Gains

EUR/USD
The pair finished the week lower, as less than impressive macroeconomic data in the form of mixed EU PMIs and weaker than expected German IFO, together with numerous comments by various ECB members saw market participants bet on further easing by the ECB. However, despite the growing consensus view that the ECB will cut rates and maybe go as far as enforce negative deposit rates, ECB’s Hansson said that there is no mechanical reaction to lower ECB staff forecast, adding that strong EUR is not uniformly negative for HICP outlook. Nevertheless, analysts at Goldman Sachs believe that it is more likely than not the ECB will announce targeted credit easing measures in June (prev. assigned 25% probability to this). Analysts also expect a 15bp cut in June and to shift the entire rate corridor downward.

GBP/USD
The pair finished the week with modest gains, as somewhat hawkish BoE minutes, together with the release of much better than expected Retail Sales data ensured that the uptrend by the pair continued for yet another week. Still, it is worth noting that mid-point this week the pair failed to benefit from higher than expected inflation related data, as market participants focused on the fact that the increase in inflation was due to transitory effects including Easter and air fares, thus boosting the figure. In terms of the minutes from the most recent MPC meeting, it was revealed that for some MPC members the decision on whether to raise rates was becoming more balanced and that an earlier hike may be needed if rate hikes are to be gradual.

USD/JPY
The pair reversed initial weakness observed early in the week, as the bounce back by the Chinese HSBC Manufacturing PMI encouraged broad based risk on sentiment, driving the Nikkei 225 index higher by over 2% the same trading day and also resulting in JPY weakness. However, gains were capped by comments BoJ’s Kuroda following the policy decision, saying that actions taken by the BoJ have had an intended impact on Japan’s economy, which in turn prompted market participants to scale back expectations of more policy easing by the BoJ.