British Pound hit by speculation storms

USD

Despite a mixed week, USD ended the week being the third strongest currency among all majors, meaning it was bought against all other currencies but EUR and CHF. Indeed, despite the publication of jobless claims at its lowest level in five years on Thursday, the USD could not fight against the EUR and lost ground against it on Friday.

On Wednesday, the American House of Representatives passed a bill to postpone budget talks regarding their debt ceiling until mid-May. This is just a just a way to buy time and try to find a solution to diminish the growing debt. The US government raised its debt ceiling more than 10 times in the last ten years, which illustrates perfectly how hard it will be for the American government to find another solution rather than raising it one more time. Forex traders will be watching the American currency closely in the following months.

This week, Forex traders will be looking at the Federal Reserve's FOMC meeting scheduled for Wednesday. US policymakers are not expected to make any changes to their current asset purchases program or to their near zero interest rates, but traders will be focusing on any clues as to when the Fed will be withdrawing its record stimulus.

EUR

Last week has been quite interesting for the EUR/USD; the pair traded nervously and struggled to find direction. Fortunately, on Friday the pair went above 1.34 levels mostly helped by much better than expected German PMIs and larger than expected LTRO paybacks announced on Friday.

On the other hand, Spanish data last week showed a record 26.0% of the workforce without jobs in the fourth quarter, bringing the total close to a staggering 6 million people. In Greece, the rate was even higher in October, at an astonishing 26.8%, a new record. According to most analysts, unemployment will probably continue to trend higher in the next couple of months.

The move on EUR/USD does not reflect the real economic situation in the euro zone. 

JPY

JPY was at the center of attention last week, as it first recovered some of its losses after the disappointing Bank of Japan decision to postpone more Quantitative Easing to 2014. Anyway this move was only temporary, indeed with the publication of trade balance figures showing a record deficit, the yen literally dropped, sending the USD/JPY pair back above 90.00 levels. The pair moved like a rollercoaster last week and many Forex traders are watching the Yen with great scrutiny.

At first sight, the weak Yen may bode positively for the Japanese trade balance, but watching closely at the situation, there will be negative side effects resulting from further weakness. Indeed a weaker currency could improve the exports but the downside is that Japan will see its energy costs rising after the Fukushima disaster.

Japanese industries, already facing high energy costs, are begging the government to restart the idle Fukushima reactors as soon as possible.

GBP

The British Pound declined the whole week. Growing concerns of a triple-dip recession, coupled with Prime Minister David Cameron's proposal to hold an EU-membership reconfirmation referendum if re-elected, conspired to bolster uncertainty on the currency. On top of that, the publication of worse-than-expected GDP figures scoring -0.3% coming from a previous 0.9% sent the Cable (GBP/USD) to a 5-month low on Friday at 1.5746.

However, despite poor GDP figures, there is one area where the United Kingdom is performing well which is the labor market. The Office for National Statistics said Wednesday that the overall jobless rate fell to 7.7%, the lowest rate since March-to-May 2009, when it stood at 7.6%. At the same time, unemployment claims declined by 12,100 from November to 1.56 million, reaching its lowest since June 2011.

Gold

The shiny but highly volatile gold lost accumulated gains since mid-January in only two days last week. It reached a low of 1663$/ounce on concerns of possible decrease of 25% of demand coming from India which is the largest gold importer worldwide.

This move illustrates perfectly how markets can be driven by feelings. On one hand, gold traders worried about a decrease in global gold demand got rid of their long positions, while on the other, , greedy traders took massive short positions.