Fed finally hinting how QE journey ends

The three key developments across
the markets this week have been: upgraded UK growth by the Bank of
England in its quarterly inflation report, euro zone growth figures
showing countries right across Europe continuing to struggle and an
article giving first details on how the Fed would begin to unwind
QE as the economic recovery continues.

The higher growth figures expected
by the Bank of England have lifted the pound, particularly against
the Euro given the continued deterioration in growth across the
continent. The slowdown is slowly spreading from the troubled
periphery into the stronger core countries, with Germany positing
lower than expected Q1 GDP and France re-entering recession.

The news pushed the Euro to a one
month low against the Dollar and depending on the tone of next
weeks Fed meeting, where the Fed is expected to continue to discuss
unwinding QE and varying the scale of asset purchases, the Dollar
could have significant further upside over the coming weeks.

Next week is a busy one for the FX
market, with central bank meetings and publications galore. The Fed
and Bank of Japan both have monetary policy meetings, plus we have
minutes from this month’s meeting from the Bank of England and
Reserve Bank of Australia. The RBA release is eagerly anticipated
given the drop in interest rates took the market by surprise.