The Pound rose against most of its G10 peers last week, despite another round of Brexit negotiations ending with little progress. However, UK PM Theresa May’s trip to Japan showed that there was a road ahead for British companies, while Sterling will have also benefited from a modest uptick in GFK consumer confidence and better than expected manufacturing PMI data.
Economists do not expect interest rates to rise until 2019 despite inflation remaining above target. In June three MPC members voted for a rate rise – the first time since May 2011 that so many had wanted to tighten policy. However, Bank of England governor Carney said in his Mansion House speech in late June that now is not the time to start raising rates.
For the week, the Pound gained 0.5% against the US Dollar, 1.2% against the Euro and 1.4% versus the Japanese Yen.
The start of last week saw the Euro push higher following Mario Draghi’s reluctance to address recent Euro strength in his Jackson Hole speech. ECB source reports kept a lid on further gains ahead of Thursday’s monetary policy meeting. Source reports suggested that there had been a growing concern among the council over the appreciation of the Euro, which may delay tapering. The ECB sees a chance that QE tapering will not be fully ready until December.
Eurozone inflation data for August came in slightly higher than expected at 1.5% against a forecast of 1.4% however this failed to support the single currency.
The chances of the ECB raising interest rates in 2018 has fallen to its lowest level on record, with expectations now below 50 per cent.
The US Dollar was mixed against its G10 peers last week. The start of week saw the Greenback pressured following a rise in geopolitical tensions on the Korean peninsula after reports that North Korea fired a missile over Japan. As the week continued, tensions eased off, subsequently supporting the Dollar.
Economic date of note last week was the key payrolls report which was relatively soft across the board, with the US economy creating 156,000 jobs in August against a forecast of 180,000, with wage metrics softer than expected and headline unemployment rising to 4.4%. In addition, the Fed’s preferred measure of inflation, PCE, also printed disappointing readings, dampening the chances of the Fed raising rates by year-end.
Reports that North Korea had fired an intermediate range missile over Japan prompted safe-haven flows at the start of the week, which bolstered the Yen across the board. An improvement in the risk environment provoked an unwind of the flight-to-safety bets and saw a reversal in the Yen as it fell against most of its G10 counterparts.
Japanese industrial production also came in soft which weighed on the Yen, but the currency was relatively unmoved by BoJ governor Kuroda’s speech at the Jackson Hole Symposium.
A risk off start to the week saw the Swiss Franc benefitting from safe haven demand following the North Korean missile test.
The Swiss KOF economic barometer also fell for the first time in three-months, while SNB head Jordan said the Swiss Franc exchange rate is still fragile.
The Australian Dollar gained against most of the G10 currencies last week following some relatively strong data in the form of building and construction data. Higher metals prices also played their part while lower oil prices will have had the opposite effect on the commodity currency as US crude fell amid the turmoil caused by Hurricane Harvey.
The Canadian Dollar was among the best performing currencies last week as strong economic data continued for Canada. GDP printed significantly higher than expected at 4.5% . This has seen rate hike expectations increase for the BoC, with this week’s meeting pricing in just shy of 40%, while a move in October is now seen at 80%.
NEW ZEALAND DOLLAR
The New Zealand Dollar was one of the weaker G10 currencies last week amid further soft domestic economic data while uncertainty looms over the general election. Support for New Zealand’s opposition Labour party jumped to overtake the National Party, threatening its decade-long hold on power. The poll showed National fell to 41%, which is the lowest since 2005 and Labour rose to its highest level since 2006 at 43%.
The Swedish Krona was modestly higher against most of the G10 currencies last week despite some disappointing data. The trade balance turned to a deficit in July, economic confidence weakened in August and manufacturing growth eased unexpectedly to a 13-month low.