It was somewhat of a mixed week for Sterling. The Pound saw a broadly weaker start to the week after press reports suggested deteriorating relations between the UK and Europe. EU officials were supposedly united on taking a hard stance in the upcoming Brexit negotiations while UK PM May had apparently threatened to walk away from talks without a deal.
The Pound found some support mid-week, albeit mild, after some strong PMI prints in the manufacturing, construction and service sectors. We then saw some further upside on Friday after a strong showing by the ruling conservative party in the local council elections which could be a good indication for the general election next month.
For the week, the pound gained 0.3% against the US Dollar and 1.3% versus the Yen but lost 0.7% versus the Euro. This week, the focus will be on the Bank of England rate decision and meeting minutes due on Thursday.
The US Dollar put in a mixed performance against the major currencies last week, although the overall bias was to the downside – the Dollar index lost 0.4% versus the prior weeks close and reached its lowest level since November 11th.
After a relatively slow start to the week, the Dollar found some gains late on Wednesday after the release of the FOMC statement. Officials noted the slowdown in economic activity during the first quarter but argued this was likely transitory and did very little to suppress market expectations that they will hike rates in June. The bullish sentiment failed to carry into Thursday however as the Dollar fell across the board, deriving little support from news that the House of Representatives had passed the Republican health care bill.
The focus on Friday was dominated by the US jobs report but mixed signals failed to prompt any sizeable swings in the US currency. The US economy added 211K jobs in April, above the market consensus for 190K. The unemployment rate also fell another tenth to 4.4% but it wasn’t all good news as average hourly earnings slowed.
Looking ahead, Fed speakers are in abundance this week with at least nine on the docket so far. The Producer Price Index on Thursday followed by the Consumer Price Index and retail sales on Friday will also be closely watched as will any developments in Washington regarding healthcare reform and more importantly, tax reform.
Independent centrist Emmanuel Macron, 39, has become France’s youngest-ever president after victory in the second-round run-off against Front National’s right-wing leader Marine Le Pen. Macron, who is economically liberal and socially progressive, wants to ease labour laws, boost education in deprived areas and extend welfare protection to the self-employed.
The Euro was one of the better performers last week, making gains across the board. The main driver for the common currency was the French election as Emmanuel Macron extended his lead ahead of Sunday’s vote. He came out on top in Wednesday’s TV debate and ended the week with at least a twenty-point lead over Le Pen in nearly every poll.
Euro Zone macro releases also played their part, starting on Tuesday with the Markit manufacturing report that showed output, new orders and employment all rising at their fastest rate in six years. Retail sales beat expectations on Thursday and there were also some hawkish comments from ECB Chief Economist Praet who said the configuration of risks around the most likely growth outlook is closer to balance than it has been in some time.
The Yen was one of the weakest currencies last week, losing ground against all the majors. Safe-haven demand for the Japanese currency was limited amid a broad improvement in risk sentiment across Europe.
Geopolitical tensions also appeared to have eased somewhat or at least taken a back seat for now. From a domestic standpoint, BoJ Governor Kuroda did provide a modest, albeit brief lift to then Yen as he highlighted a narrowing output gap and tight labor market.
It was not the busiest week for the Swiss Franc although it displayed some strength despite little domestic news to work with. Retail sales beat expectations on Monday but were followed by a weaker PMI print on Tuesday. Safe haven demand will also have receded this week as geopolitical tension appeared to have eased somewhat or at least taken a back seat for now.
The Australian Dollar fell against most of the major currencies last week. Falling commodity prices have been the main driver – US crude futures tumbled almost eight-percent for the week at Thursday’s low although they did see a modest bounce back on Friday. Metal prices have also dived with Copper at its lowest since the start of the year and Zinc approaching a one-year low.
From a monetary policy standpoint, the RBA opted to leave rates on hold on Tuesday which did not prompt much reaction. Hawkish comments from RBA Governor Lowe on Thursday provided a modicum of support on Thursday yet the RBA statement on Friday did the opposite as they warned of risks in the housing market.
NEW ZEALAND DOLLAR
The New Zealand Dollar was one of the better performing currencies last week, especially among the commodity currencies. While most of the commodity currencies were hampered by falling oil prices, the New Zealand Dollar showed some impressive resilience as investors chose to focus on domestic factors.
On Wednesday, employment figures were better than expected with the unemployment rate dropping to 4.9% and on Friday RBNZ inflation expectations rose to 2.2% from +1.9%.
The Swedish Krona was relatively stable last week. Comments from Riksbank policymaker Jansson on Thursday provided a small weight after he bemoaned the currency’s strength and raised the possibility of action if the Krona strengthens too much.
The Norwegian Krone fell across the board last week. A plunge in oil prices was the main driver for decline in the Krone as US crude futures lost almost eight-percent at Thursday’s low. It was of little surprise then to see the Krone bounce back on Friday as oil prices did the same.
The Norges Bank left rates on hold on Thursday as well although there was minimal reaction in the currency.