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EUR Weekly

Broadly, investors tended to favour the premier league currencies – the US dollar, the euro, the yen and the Swiss franc – over those of commodity exporters and emerging markets this week. It was symptomatic of a mood of caution that prevailed over all financial markets. The failure of the European Central Bank and the Bank of Japan last week to wheel out new stimulus measures has led investors to consider the possibility that industrial-scale central bank money-printing is coming to the end of the road.

With expectations of a US central bank interest rate rise happening this month already waning, Federal Reserve hawks – and the dollar – were dealt a further blow when governor Brainard addressed the Chicago Council on Global Affairs on Monday. Rumour had it that Ms Brainard, the most dove-like of Fed doves, could be about to make a monetary policy U-turn and talk up a September rate hike. As it happened she stuck to her guns, asserting that “the case to tighten policy pre-emptively is less compelling”. Investors who had been expecting the unexpected quickly readjusted their US rate outlook and the probability of an increase next week dropped back to one in five.

The pound also dipped on Monday as investors reacted to the news that UK inflation was softer-than-expected in August; keeping the chance of another Bank of England rate cut on track. The Office for National Statistics figures fell short of expectations of a 0.7pc rise last month, instead holding steady at 0.6pc. A significant rise in raw material costs after June’s vote to leave the European Union was offset by lower prices for clothing, hotels and wine.

Investors had been expecting Wednesday morning’s UK jobs data to show unemployment steady at 4.9% with a small increase in the number of jobseekers and a 2.1% rise in average earnings. Except for a slightly disappointing 5k more jobseekers that was pretty much what they got. Moreover, the number of people in work was the highest ever and the 74.5% employment rate (the number of people working relative to the number of people of working age) was the highest since the calculation was first made in 1971. Despite the reasonable numbers sterling initially started moving lower against the euro, before rebounding later in the day.

The pound slipped against the dollar and the euro on Thursday, after the Bank of England left the door open for a further cut in UK interest rates this year, having voted unanimously to keep its policy on hold this month. The British mantra of ‘Keep Calm and Carry On’ has seemingly paid dividends since the Brexit vote, after a run of better than anticipated economic data demonstrated the resilience of the UK economy. However, “The Committee’s view of the contours of the economic outlook following the EU referendum had not changed,” the central banks meeting minutes said. They went on to say that if its November forecasts are “broadly consistent with August’s” then a majority of MPC members expected to “support a further cut in the bank rate” over the course of the year.

There was little in the €Z economic data to enthuse potential buyers of the euro. Investor sentiment softened, industrial production fell, the trade surplus narrowed and inflation remained stuck at 0.2%. The euro did manage to carve out a half-cent gain against sterling but it lost a third of a US cent and was roughly unchanged, on average, against the other dozen most actively-traded currencies.

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