ajor currencies rallied against the greenback, led by the Euro and commodity-dependent currencies like the Brazilian Real and the Australian Dollar. However, the unambiguously strong December payroll report out of the US cut short this rally. By Friday close, the US Dollar had recovered most of its losses.

The worst performer for the week was the Mexican Peso, hammered down to yet another all time low by signs that Trump’s inclination towards protectionism is not merely rhetorical.

Next week will be a quiet one in both sides of the Atlantic. We do get a deluge of Chinese data, and we expect financial markets to react strongly to any surprises. Chinese inflation, financing and trade are particularly critical. Beyond China the release of the minutes for the last ECB meeting and confirmation hearings in the US for Trump’s appointees will take centre stage.

Major currencies in detail

GBP

The extraordinary run of post-Brexit positive surprises continues unabated in the UK. The PMI business sentiment indicators for December all saw unexpectedly strong improvement. Sterling did not benefit as much as one would expect from these developments, as the resignation of the UK ambassador to the EU was interpreted by markets as a negative sign for UK prospects of retaining single market access. Next week is very light in terms of news flow from the UK, and Sterling should fall back to its role as a halfway house between the US Dollar and the Euro, responding to developments elsewhere.

EUR

Key economic indicators out of the Eurozone provided further confirmation of a strong, sustained turn for the better. As in the UK, business sentiment indices for December improved noticeably, and are now consistent with growth in the 2-2.5% range. Critically for the ECB, inflation last month rebounded. Excluding the more volatile components, it rose 0.1% to 0.9% for the year. Still too low for the ECB, but we are confident that the lows are behind us, and the trend is firmly positive.

We at Ebury have a reasonable claim to having introduced the expression “monetary policy divergence” to describe the main driver of US Dollar appreciation against the Euro. This is now on everyone’s lips, particularly as we await the publication of the minutes favour the ECB December meeting. Markets will look for hints as to the level of consensus in the changes introduced, and in particular the degree of opposition that these measures encountered from the Bundesbank.

USD

The sell off in the US Dollar was stopped in its tracks on Friday with the release of yet another strong print from the US labour market. 156k jobs were created in December, and there were positive revisions to previous months numbers. Perhaps even more importantly, job market tightness is clearly starting to feed through to wage increases. These rose by 2.9% in 2016, the highest rate since the 2008-2009 financial crisis. Measures of unemployment and labour force participation also showed further improvement overall. This report clearly means that our forecast for at least three Fed hikes and a continued USD rally in the first half of 2017 remains on track.

Next week politics takes centre stage. The US Senate will conduct hearings to approve Trump’s picks for his cabinet. The Republican majority will probably guarantee that all nominees are approved, but the key will be statements and comments regarding trade and economic policy plans. The lack of details so far on Trump’s policy priorities mean that currency markets could experience significant volatility as these comments hit the tape.