Sterling traders were kept on their toes last week with a flurry of tier-one data releases and central bank rhetoric. The pound was already on the defensive following soft prints for UK wages, CPI and retail sales but lost further ground after comments from Bank of England Governor Carney on Friday. He noted that recent data had been mixed and pointed out that the MPC are conscious that there are other meetings over the course of this year.
Following Mr Carney’s comments the pound fell against the dollar and euro, as markets reacted to the idea that interest rises may not be imminent as some thought.
Brexit negotiations also appear to have hit a roadblock after the EU has reportedly rejected the UK proposal for avoiding a hard border in Northern Ireland. This week is quieter on the data front ahead of Friday’s Q1 GDP numbers.
The US Dollar finished last week on the front foot, with the Dollar Index reclaiming the 90-level as US government bond yields scaled new multi-week highs. Data releases were largely supportive although are unlikely to have any dramatic impact on the Fed’s thinking.
Investors were more likely welcoming the improvement in both geopolitical and trade tensions which continued over the weekend with North Korea pledging to stop its nuclear missile tests.
There will be plenty of data for investors to work with this week with Markit PMI and durable goods likely to be the focus before Friday’s GDP report.
Euro Zone CPI was revised lower later week to +1.3% YoY in March from +1.4% in the flash reading. The data only weighed briefly on the Euro however with many analysts pointing to the wage deal struck between the German government and public sector workers. Comments from ECB President Mario Draghi may have also flown under the radar where he said that the growth cycle may have peaked. He also argued that remaining uncertainties still warrant patience, persistence and prudence with regard to monetary policy.
The ECB meet this week with the policy decision due on Thursday although sources have said the Governing Council will wait until July to signal the end of quantitative easing.
The Japanese Yen was mixed last week although was one of the stronger G10 currencies behind the US Dollar. Investors were hoping for some direction from Friday’s CPI report but both headline and core CPI were in line with expectations.
We expect to see some more volatility this week ahead of Thursday’s Bank of Japan policy announcement although no major changes are expected. Manufacturing PMI rose overnight ahead of industrial production and household spending data due later this week.
Eur/Chf crossed above 1.20 on Friday for the first time since the removal of the peg back in 2015. SNB President Jordan later commented that this is the right direction but added that the current policy stance is needed and there is no hurry to change it.
Looking ahead, Jordan speaks again on Friday while trade figures and ZEW are out tomorrow and Wednesday.
The Australian Dollar fell into the weekend following the weaker-than-expected employment figures released on Thursday. Rising US yields will also have added to the downward pressure, but rising oil prices will have provided some balance for traders.
This week, tomorrow’s CPI data will likely be the main focus.
The Bank of Canada left rates on hold on Wednesday as was widely expected but adopted a more cautious tone that many economists had predicted. Governor Poloz was also fairly dovish in the press conference and his approach seemed justified given the soft CPI data that followed on Friday.
On the NAFTA front, sources said the US are aiming for a deal within three weeks while Canadian Foreign Minister Freeland said the US, Canada and Mexico have made good progress on the rules of origin for autos. Ahead, wholesale trade sales later today and budget data on Friday.
NEW ZEALAND DOLLAR
New Zealand CPI data was out on Thursday and although the QoQ read was a touch stronger-than-expected at +0.5% (f/c. +0.4%), more attention was paid to the notable slowdown in the YoY rate to +1.1% from +1.6%. Investors also noted the now negative yield spread between New Zealand and the US – US yields are now above New Zealand.
The Swedish Krone was one of the only G10 currencies to gain versus the US Dollar last week despite an absence of any notable data releases or Riksbank comments. Thursday’s rate announcement will be the main focus this week although little change in the policy stance is expected. Unemployment, consumer confidence and retail sales are also due.
The Norwegian Krone weakened last week, deriving little support from further gains in oil prices as investors instead focused on the geopolitical tensions behind the move. Closer to home, Norges Bank Governor Olsen reiterated that rate increases will happen after the Summer. Unemployment data is the main focus this week.
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