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• Main theme driving the FX market: The Bank of England and the European Central Bank left interest rates unchanged this week. The dollar rallied to 2-month highs against the euro despite oil reaching fresh record highs nearly every day this week. Euphoria over what many feel is the end of the financial crisis and a shift in monetary policy outlook between the FOMC and ECB drove the dollar higher.
• British pound: Cable fell to 21/2 month lows, while sterling maintained the gains seen at the end of last week against the euro for most of the week. The Bank of England left interest rates on hold at 5.0%. Andin keeping with tradition, there was no statement issued with the rate announcement which called for no change. Sterling had a bade week in terms of economic data and traders had become nervous going into the rate decision, concerned that the central bank could surprise markets with an interest rate cut. The CIPS services survey fell well under expectations, as did industrial production. Nationwide reported its consumer confidence falling to an all-time low
• U.S. dollar: The view that the worst of the financial crisis has past and that the US economy may not be in as bad shape as everyone had thought lent huge support to the dollar, which continued its rally from last week. The economic data still showed a soft economy, with the exception of the ISM non-manufacturing survey that surprised to the upside at 52.0. It was the first time the services survey stood in expansion territory this year. The number complimented the positive effects last week’s non-farm payrolls release that showed only -20k jobs lost. Pending home sales continued to see weakness coming out in line with market forecasts of a 1% fall. Trade figures at the end of the week will likely reflect the high price of oil paid in March by widening the deficit.
• Euro: Record oil prices, close to record high PPI and a HICP that is a full percentage point higher than the ECB’s target would not allow Trichet to sound less hawkish, though he clearly acknowledged the dip in economic activity that has shown up in recent data releases. As expected the ECB decided to leave interest rates on hold at 4.0%. Weaker than expected sentiment figures this month and soft growth data weighed heavily on the euro. German manufacturing output came in at a 6-month low, while euro zone retail sales sank to levels never seen falling 1.6% y/y.
• Japanese yen: The yen had a volatile week. As the euphoria over the end of the financial crisis picked up so too did carry trades sending the yen sharply lower against its main crosses until mid-week. The yen rebounded when carry trades were unwound after the Dow tumbled over 200 points sending Asian equity markets lower.

• Britain: The Bank of England is scheduled to release its inflation report. Traders will be keen to get their hands on the report so to assist them with determining the proper monetary policy outlook. Going into the release, markets predict that the BoE will lower interest rates at their next meeting. Key producer and consumer prices will be released as well as important labour statistics.
• United States: Finally, traders will be inspired by some vital US data releases this week. Inflation, retail sales and housing starts are expected to show a stalled economy. Retail sales are forecast to come in flat, while CPI is expected to come in at an elevated 0.3%, the same as the prior month. Industrial growth numbers and housing starts should reflect a depressed market.
• Euro-zone: Q1 GDP data alongside HICP will be watched for signs that inflation is moderating as growth slows. The data will be interesting as traders continue to shift through more evidence that the global growth slowdown has come to Europe and will eventually influence the ECB’s monetary policy outlook.
• Japan: The March trade balance and machinery orders will be overshadowed by the release of Q1 GDP which is forecast to come in at 2.5%y/y. Regardless, yen trade is expected to continue to be driven by risk appetite and equity markets movement.

The information contained herein is collected from sources believed by Ruesch International to be reliable, however, Ruesch International cannot guarantee it to be free from errors. The information presented on this page is not an offer to buy or sell any currency.