Weekly currency roundup – A week of volatility for commodity currencies as Fed confusion sparked uncertainty

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Pound Sterling At the start of the week the Pound weakened against the Euro and US Dollar due to a selloff of the currency and as speculation mounts that the US Federal Reserve will soon announce a slowdown of monetary stimulus.  The uncertainty over the Fed’s next move regarding its easing policies was the main reason for the volatility seen in the market this week.

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Sterling continued……….The currency strengthened briefly on Tuesday, as according to the Office for National Statistics, unemployment claims in the UK expectedly fell by 5,000 last month. Sterling came close to a three-week high against the single currency thanks to the data.

At the end of the week the Pound was little changed against the US Dollar and is headed for a third weekly gain against the US currency, after an industry report showed that UK house prices rose to a record high in May. The weekly gains are the currency’s longest winning streak since September 2012.

US Dollar

The ‘Greenback’ had a mixed week thanks to speculation mounting over whether the Federal Reserve will choose to slow its monetary stimulus programme as the economy improves. Against the Japanese Yen the US Dollar rallied from a two-month low due to last week’s better-than-expected US jobs data.

Tuesday the currency weakened against Sterling as the latest UK data showed continuing signs of improvement for the UK economy.

On Wednesday the big dose of volatility hit the market with the ‘Greenback’ has weakening against the Japanese Yen, slumping to its lowest level in two months as investors chose the safe haven Yen as the World Bank lowered its global growth forecast. The impact of the Japanese central bank’s decision to hold the policy unchanged, rather than adding more stimuli, reverberated through the markets.

Ongoing uncertainty over whether the Federal Reserve will choose to scale back its monetary easing programme also weighed upon the Dollar.

The Euro

The Euro also had a mixed week due to the increased volatility. On Monday it strengthened against Sterling due to expectations that the Euro-Zone Sentix Investor Confidence data would show signs of an improvement. The Euro managed to make some gains against its peers after European Central Bank President Mario Draghi reaffirmed the bank’s commitment to the Euro.

The Euro was also strengthened against a number of its most traded peers as optimism increases that the Eurozone economy is improving. Investor confidence in the region showed signs of improvement and comments made by French President Francois Hollande that the Euro crisis is over helped bolster the single currency.

Midweek, the Euro weakened against the Pound and US Dollar after the latest report on German Consumer confidence came in lower than forecast. It came in at 1.6%, down from the previous month’s figure of 1.7%. The weaker-than-expected data caused investor to seek shelter in the safe haven US Dollar as concerns over the Euro crisis resurface.

Australian Dollar

The ‘Aussie’ took a battering at the start of the week before recovering by the end. On Monday it fell to a two-and-a-half year low against its US relation due to the release of unexpectedly weak data out of China, Australia’s biggest trading partner. The Chinese economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside which is prompting warnings from some analysts that the country could miss its growth target of 7.5% for this year. The ‘Aussie’ was also been weighed down by the growing confidence in the US economic recovery which has seen investors ditch the currency in favour of the ‘Greenback’.

On Tuesday the Australian currency fell to its lowest-level in almost three-years against the US Dollar after home-loan approvals in Australia advanced at their slowest pace in three months. The data lends support to calls for the Reserve Bank of Australia to make further interest rate cuts.

The Australian economy is showing signs of a slowdown and has not been helped by worse-than-expected data releases from its biggest trading partner, China. Calls from the central bank for the ‘Aussie’ to weaken further have also weighed on the currency.

The ‘Aussie’ continued its decline against the US Dollar after a brief rally following the release of a report that showed that Australia’s unemployment rate was lower than expected in May. The currency resumed its downward trajectory as the figures failed to alter investor predictions that the Reserve Bank of Australia will make further interest rate cuts in July.

New Zealand Dollar

The ‘Kiwi’ went into a downward spiral this week after the nation’s central bank called said that the currency was overvalued. On Monday it fell to an eleven-week low against the US Dollar due to the release of the weaker than expected data out of China. Chinese manufacturing and trade figures released on the weekend were weaker than expected, sapping demand for the Oceanic currencies. The currency has also been weighed down by the spur in demand for the US Dollar as data continues to show the world’s biggest economy is making a strong recovery. It weakened against the majority of its peers as investors chose the US Dollar over its New Zealand relation.

Midweek the ‘Kiwi’ tumbled to a nine-month low against the Pound after traders chose to dump the New Zealand currency in response to the Bank of Japans announcement that it would not be adding to its monetary easing programme. The Pound breached the psychologically significant 2.000 level for the first time since last September. Against the Japanese Yen the ‘Kiwi’ tumbled to a five-month low.

Canadian Dollar

On Monday the ‘Loonie’ made its biggest gains against its US relation in a year and a half after the Canadian economy added the largest number of jobs in a decade.

It also strengthened against the majority of its most traded peers after new-home construction in Canada increased at its fastest pace in more than a year. Midweek the ‘Loonie’ strengthened to its highest point in three-years against the Australian Dollar as speculation grows that the North American economy will lead the way in global growth.

On Friday the Canadian currency strengthened to a four-week high against the US Dollar after US retail sales climbed by 0.6% in May, the largest increase in three months. The Canadian currency was also supported by the nation’s new housing price index which advanced more than expected in April, with the cost of new homes advancing by 0.2% month by month rather than the forecasted 0.1%.

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