he numbers were worse than the market had expected and consistent with a UK recession starting this quarter.

These numbers were in sharp contrast to the steady stream of positive economic releases out of the US, particularly from the housing market. Meanwhile, the ECB did what it could to stay out of the way, leaving policy unchanged and giving little information about the future path of policy.

Given this backdrop, last week’s FX moves were unsurprising. The US Dollar scored gains against every major currency and European currencies suffered, down anywhere from 0.6% to 1.2% against the greenback.

This week focus switches from macroeconomic releases back to central bank policy. Once again expectations are very high for the Bank of Japan meeting, with the vast majority of strategists, ourselves included, expecting significant monetary easing. This could be achieved through a rate cut, from the current -0.1% level, combined with increased direct purchases of risk assets.

Perhaps more importantly, we expect to see clear hints of coordination with the Japanese Government in the sphere of fiscal stimulus; whether or not this coordination amounts to ‘helicopter money’ is less important in our view. It will be hard for the Yen to maintain its current high levels if the BoJ meets our expectations.

The Federal Reserve is also due to meet this week. No change in policy is expected but we think Wednesday’s statement will acknowledge the recent strength of US economic indicators. Markets may choose to focus on the yawning gap between the Fed’s cautious optimism and the extremely low, albeit growing, market expectations for a rate hike, which would be supportive for the US Dollar.

Major currencies in detail:

GBP

The UK inflation release was overshadowed last week by the first major data to be released reflecting the impact of the Brexit vote.

The PMI indices of business confidence all experienced their largest fall on record. Forward looking components such as new orders fell even harder. The composite PMI level is now consistent with a significant contraction in the UK economy.

However, the PMIs sometimes overreact to shocks. The August numbers will be just as important as those from July. It is possible that once the immediate shock wears off, the Pound stabilises and equity markets resume their upward path, we will see some modest rebound in these numbers.

EUR

There were no surprises from the European Central Bank last week, with Draghi failing to commit to further stimulus.

The ECB is clearly in ‘wait-and-see’ mode and at present has almost no information on the post-Brexit impact. However, Draghi reiterated the central bank remains willing and able to act and by September it should have a much clearer view on how last month’s Brexit has impacted the Eurozone economy. Notably, Draghi also explicitly called for looser fiscal policy and reiterated Eurozone banks remain solvent.

The ECB must have breathed a sigh of relief after the post-Brexit Eurozone PMI indices came out only modestly lower, albeit still on a downward trend.

The next key test for the Euro will be the release of the flash inflation estimate. Any downward surprise, especially in the core number, would add significant pressure to the Euro.

USD

Economic data out of the US economy last week continued to be supportive of an interest rate hike by the Federal Reserve in December.

The world’s largest economy continues to appear isolated from political events in Europe, with July’s manufacturing PMI exceeding expectations and rising sharply to 52.9 from 51.3, despite last month’s Brexit vote. We also saw another impressive week of jobless claims, while data out of the housing market continues to go from strength to strength with housing starts and building permits both increasing on a month previous.

Financial markets have reacted in unsurprising fashion to this string of solid data releases and are now close to pricing in the second post-financial crisis Fed hike before the year is out. This should provide good support for the US Dollar against almost every major currency during the rest of 2016.

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