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By Gaurav Kashyap, Alpari ME DMCC
USDJPY shed more than 2% to close the week at 83.10 levels while USDCHF continued its slide to settle at 0.8919 levels. In the commodities, the West Texas Intermediary closed four dollars lower on the week just above 109 levels while Gold and Silver closed the week with large gains after posting new all-time highs of 1488 and 42.98 respectively.
The markets kicked off the week rather uninspired and with no major releases until Tuesday to drive the markets, the currencies opened in a sluggish mood with a US Dollar bias. Any prevailing upside moves were to cover Monday morning's lower opening and strong resistance was regularly seen at Friday's closing prices. The trend continued into Tuesday's session and the UK's weaker CPI data, a key measure of a nation's inflation levels, helped compound and guide GBPUSD further downwards.
Sterling sell-off on CPI data pressure
Tuesday's reading showed that inflation was slowing down both on the month-on-month (0.3% act v 0.7% prev) and year-on-year reading (4.0% act v 4.4% prev) triggering a selloff in the Sterling as the news took the air out of the seemingly large number of hawks expecting a rate hike by the Bank of England.
To further pressure GBPUSD was the shrinking trade balance data (to -£6776) and the weakening retail price index which dropped to 0.5% act v 1.0% prev on the month-on-month reading. The combo of weaker data from the UK saw GBPUSD hit its lowest level during the week at 1.6227. The pair was eventually able to pare some of its losses and close the week at 1.6323, more than 50 pips lower on the week.
No doubt the focus of GBP traders this week will be the release of the BOE's meeting minutes due out on Wednesday. Although rates were left unchanged during the latest meeting (with the members voting 6-3 to hold), traders will focus on the most recent voting to see if any other hawks have joined the ranks of Andrew Sentance, Spencer Dale and Martin Weale. The committee is just two votes away from forcing their hawkish views and if the report shows a voting shift to 5-4 the Pound will no doubt benefit.
However, with the most recent CPI reading showing a slow down in price growth for the first time in half a year, along with a slew of negative economic data, a shift in voting patterns might be premature for the time being and if there is no significant change in the rhetoric of this month's report, GBPUSD will replicate its selloff following the release of the report on March 23.
EU focus on Greece, Portugal sovereign debt worries
With the ECB's rate decision done and dusted from the week before, investors' focus was squarely on the sovereign debt worries which reared its head yet again. Five year credit default swaps of Greek and Portuguese debt both hit record levels as yields spiked to new all time highs this past Thursday which led the German FM to state that Greece will have no choice but to restructure their debt in the months ahead. Portugal barely scraped through in repaying €4.2 billion on Friday on bonds which were up for redemption and faces another redemption payment of £7 billion come June. Although Portugal negotiated a bailout in the region of €80 billion the week before, thrashing out the confirmed terms of the bailout and what strings will be attached will take noticeably longer.
Stronger members of the EU such as Germany and Finland have already voiced their displeasure after a third bailout and are demanding a tougher approach to Portugal.
Staff
