The two currencies topping this week's ladder achieved their elevated status partially as a result of what didn't happen.
In the case of the yen it was the Bank of Japan's failure to announce any new money-printing stimulus after its policy meeting on Friday. Another failure has been that of Japanese investors to direct their money offshore. Instead they have been taking advantage of the weaker yen to repatriate assets; not at all what was expected.
For sterling it was the failure of the UK economy to 'slip into a triple-dip recession' that took the currency higher. Investors had anticipated a positive figure for first-quarter gross domestic product (GDP) but only by a hair's-breadth 0.1 per cent. When they were presented with a figure of 0.3 per cent they were therefore impressed and bought the pound. Not only was it a bigger step in the right direction, it also reduced the likelihood that any more members of the Monetary Policy Committee would join the governor and his two acolytes in calling for more asset purchases by the Bank of England.
America's 2.5 per cent first quarter GDP expansion, reported the following day, looked a whole lot stronger, not only because it is quoted as an annualised rate. Translated into a quarter-on-quarter 0.6 per cent it was still better than anything Europe could offer. It was a disappointment to investors though because they had been expecting a figure of three per cent (0.7 per cent quarter-on-quarter). It was not bad enough to send the dollar appreciably lower, but it took the shine off the US currency.
This week's big deal is potentially the European Central Bank's policy announcement and press conference on Thursday. After holding its refinancing rate at 0.75 per cent for nine months, the ECB could well lower it to 0.5 per cent this week.
No comments yet