Major Events Fuel Global Reaction in Currency Markets

The U.S. Dollar posted a two-sided trade last week against a basket of currencies before closing higher for the week. The price action was spread around the globe with gains coming against the Euro and the British Pound. The Dollar lost ground to the Australian and New Zealand Dollars. The Greenback finished marginally lower against the Japanese Yen.

June U.S. Dollar Index futures settled the week at 97.239, up 0.569 or +0.59%.

Three key events controlled the price action, the European Central Bank’s monetary policy decision, former FBI Director James Comey’s testimony before the U.S. Senate Intelligence Committee and the U.K. elections.

EUR/USD

The Euro fell last week after the European Central Bank (ECB) left its benchmark interest rate unchanged on June 8 and dropped any reference to a future rate cut.

The EUR/USD settled at 1.1195, down -0.0085 or -0.75%.

In its monetary policy statement, the ECB said it expected interest rates to “remain at present levels for an extended period of time,” but added that it would be ready to extend its quantitative easing (QE) program if needed.

This was the fifth consecutive quarter that the ECB has held rates at 0.00 percent so the decision to leave rates unchanged did not come as a surprise to investors.

Mario Draghi, president of the ECB, triggered the selling during his press announce after the interest rate decision. Draghi said that the bank considered the risk in the Euro Zone Region to now be “broadly balanced.” However, he tempered his view by announcing a downward revision of the bank’s inflation projections. The ECB now anticipates inflation levels of 1.5 percent in 2017, down from forecasts released in March, which saw inflation reaching 1.7 percent in 2017.

GBP/USD

The British Pound fell sharply last week following results of the U.K. election which showed the ruling Conservative Party failed to reach a majority in the British Parliament.

The GBP/USD settled the week at 1.27391, down 0.0149 or -1.16%.

After the election, it was determined that no party had secured an outright majority and that Britain is facing a hung parliament. There have also been reports that the Conservatives have already contacted the Democratic Unionist Party and agreed to a coalition deal. U.K. Prime Minister Theresa May also asked the Queen to form a new government.

AUD/USD

The Australian Dollar surged early in the week before the buying tapered off into Friday’s close. Although the Reserve Bank of Australia left rates unchanged as expected, traders reacted positively to the statement which was more upbeat than anticipated.

The AUD/USD settled at .7524, up 0.0084 or +1.13%.

Quarterly GDP also came in better than expected at 0.3%, beating the 0.2% forecast. The Trade Balance also disappointed, coming in at 0.56 billion. This was well below the 1.91 billion estimate. Prices retreated from the high for the week after monthly Home Loans came in down 1.9%, worse than the -0.9% forecast.

NZD/USD

The New Zealand Dollar continued to surge, this week helped by firm GDT Price data and robust Manufacturing Sales. For the quarter, they were up 2.8%. A generally upbeat outlook for the economy also encouraged aggressive speculative buying and short-covering.

The NZD/USD settled at .7210, up 0.0067 or +0.94%.

USD/JPY

The Dollar/Yen posted a two-sided move last week before rebounding from its low for the week to close only slightly lower. The rally was fueled by the testimony of former FBI Director James Comey before the U.S. Senate Intelligence Committee. During this round, Comey didn’t reveal anything investors didn’t already know and didn’t clearly say that President Trump obstructed justice.

This news encouraged investors to sell the safe haven Japanese Yen. It also drove up demand for the higher-risk U.S. equity markets. U.S. Treasury yields also rose, making the U.S. Dollar a more attractive investment.

The USD/JPY settled at 110.318, down 0.103 or -0.09%.