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FX markets have been unsettled this week, with the dollar index swinging around due to choppiness in fixed income and equity markets. On a broader macro scale, price action has been indecisive and lacked clear direction, and this filtered into FX markets. Towards the end of the week, however, negotiations between President Xi and Biden helped to support risk appetite and provide a clearer backdrop for markets, while a swathe of central bank decisions gave further clarity on the path of future policy. Firstly, the Reserve Bank of Australia committed to its decision to taper its QE programme by A$1bn despite the near-term risks to the growth outlook. While in North America, the Bank of Canada maintained its optimistic outlook on the economic recovery despite the brewing fourth wave, and subsequent testimony by Governor Macklem on Thursday provided guidance on what the future of BoC policy looked like once the QE programme was wound down. Then, the ECB stepped up and reduced the pace of PEPP purchases to a “moderately slower” rate, but their inflation forecasts stopped markets taking this message in too hawkish a manner. Next week’s data calendar focuses heavily on inflation data in major developed market economies, while core CPI readings from Poland and inflation expectations data in Turkey will be viewed amid historically high CPI readings.
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Authors:
Simon Harvey, Senior FX Market Analyst
Ima Sammani, FX Market Analyst