Major currency update

Dollar dampened by shattered dreams
One event dominated financial markets for the entire week: the Federal Reserve's policy announcement on Thursday evening. Might the Fed be about to increase US interest rates for the first time in more than nine years? No.

As the announcement drew nigh only a third of economists polled by Bloomberg thought the Fed would tighten policy. The faintness of that expectation weighed on the US dollar and it fell further after the announcement to become the week's worst-performing major currency. Overall it lost a cent and a quarter to the euro and only a little less than that to sterling.

The benefits of an extended period of near-zero US interest rates were not distributed as evenly as they might have been among the commodity-oriented currencies. Canada's Loonie was lower by three quarters of a cent despite slightly higher oil prices. The Kiwi dollar managed to eke out a half-cent gain only with the help of a further recovery in milk prices.

Top of the shop
At the head of the field the South African rand led by quite a margin, going up by 1.8% against sterling. The Aussie and the Swedish krona shared second place, strengthening by 1.0%. Sterling was off the pace, falling by an average of -0.4% against the other dozen most actively-traded currencies.

The rand received considerable help from news of a takeover bid for SABMiller, a British brewer listed on the Johannesburg stock exchange. Sweden's krona got its boost from figures last Friday which showed quarterly economic growth accelerating to 1.1% in Q2 and unemployment falling to a post-recession low. There were no specific events or data to take the Aussie ahead but investors were reassured by another week of silence, on the part of the Reserve Bank of Australia, about the overvaluation of the currency.

Sterling's week would have been even less comfortable had it not been for Wednesday's UK employment data. They showed basic wages rising at the fastest pace in six years with unemployment falling to a seven-year low.  The data more than offset investors' disappointment at the previous day's inflation figure, which came in at 0.0%.

Outlook
The Federal Reserve's failure to tighten monetary policy, and its concerns about the dampening effect that slowing growth in emerging markets (=China) might have on America's economy, have left investors with much to ponder. If nothing else it finally kills any chance of higher UK rates this year.

The only UK ecostats on next week's agenda are public sector borrowing, industrial orders and house prices. None of those is of top-level importance. For the euro the ones to watch are the provisional purchasing managers' index readings and a speech by the ECB president on Wednesday. The US highlight will be Thursday's durable goods orders data.

Following Athens's headline-grabbing antics earlier this year, Sunday's Greek general election is theoretically important. However, with economic policy now in the hands of Brussels and Berlin it hardly matters.