The Pound fell against most of its major counterparts last week amid a backdrop of poor UK data. Manufacturing, industrial and construction output all dropped and undercut analysts’ forecasts while PMI data released earlier in the week showed a similar underwhelming trend, raising doubts on the performance of the economy in the second quarter and the ability of the Bank of England to tighten monetary policy amid political and Brexit-related uncertainties.
On the central bank front, we saw some conflicting views from Bank of England voters, as Vlieghe stuck to his dovish playbook, while hawkish dissenter McCafferty suggested that it was prudent to start raising interest rates at this stage.
For the week, the Pound lost 1% versus the US Dollar and 0.8% versus the Euro but gained 0.3% versus the Yen.
Looking ahead, there is a slim slate of UK data this week which is headlined by labour market figures on Wednesday.
It was a mostly positive week for the Euro, buoyed by increasing hawkish rhetoric and news from the ECB. Governing Council voters Villeroy and Nowotny stated that QE won’t be a permanent feature of ECB policy, while Thursday’s release of ECB minutes showed officials considered removing a pledge to increase bond-buying when they met last month.
We saw a brief pullback in the single currency after a source report that some ECB members are cautious of removing the easing bias in the July meeting on the back of the recent surges in the Euro and European government bond yields but this proved short lived.
Data releases also provided a lift to the Euro last week as upbeat PMI prints on Monday and Wednesday were followed by better than expected Euro Zone retail sales and a steady unemployment rate.
Looking ahead, the Euro Zone agenda is fairly light this week, with Sentix investor confidence missing expectations earlier this morning, printing 28.3 vs 28.4. May industrial production metrics for Italy are released tomorrow and for the Euro Zone as a whole Wednesday before final reads for German, French and Spanish CPI in June.
On the central bank front, we may hear from the ECB’s Coeure, Nouy and Draghi.
The US Dollar rose against most of the major currencies last week, helped by some positive reports on the US economy and news from the Fed showing they remain in a tightening mindset.
After a fairly muted start to the week amid the Independence Day holiday, the minutes from the Federeal Reserve indicated a determination to continue raising rates even with tepid inflation rates, which they viewed as transitory.
Friday’s US jobs report, which showed a solid 222k jobs created over June on a revised May print of 152k from 138k; but where wage inflation, at the same time, remained well under control at a slightly weaker than expected 2.5% annual pace, kept the Fed’s normalisation path intact but did not accelerate it.
In terms of global rate re-pricing and how much further it has to go, the US will take over the baton from Europe this week, with Fed Chair Yellen’s two-day testimony, Fed Brainard’s speech on monetary policy and Friday’s US CPI read.
On Friday, the Fed’s Monetary Policy report to Congress didn’t contain anything particularly new. There was a restatement of its plans to commence tightening policy as well as what appeared to be increased interest in financial stability concerns.
The Yen was the weakest G10 currency last week as global bond rout continued and pushed yields higher again. In response to the developments, the BoJ announced it will carry out an emergency fixed-rate bond buying operation to curb long term yields under the so called “Yield Curve Control” framework. The central bank said it will buy unlimited amount of JGB with maturities of 5 to 10 years.
Data-wise, there was no meaningful reaction to Monday’s upbeat Q2 Tankan survey from Japan while the manufacturing PMI fell to 52.4 in June from 53.1 in May.
Looking ahead, machine tool orders, industrial production and capacity utilisation figures are all on the schedule this week, providing a useful insight into the health of Japan’s manufacturing sector.
The Swiss Franc was able to record some modest gains early in the week as investors started to seek refuge after news of North Korean testing another ballistic missile crossed the wires.
However, signs of stability in global equity markets weighed on the Swiss Franc’s safe-haven appeal in the second half of the week. Data releases were also disappointing, with the headline CPI falling 0.1% m-o-m in June as against a flat reading expected and 0.2% rise recorded in May.
The Australian dollar fell against most the major currencies last week as the RBA broke the recent trend of central banks turning hawkish. The Reserve Bank flagged issues around employment growth, slow wage growth and housing debt ‘outpacing’ incomes. They also reiterated that a rising Aussie dollar would complicate any economic adjustment.
The RBA’s statement wasn’t all negative and the central bank was relatively upbeat on business conditions, it highlighted that domestic growth is expected to slowly strengthen, while suggesting that the global economy is picking up.
Looking ahead, Australian data is headlined by home loans tomorrow which are expected to rise by 1.5% month-on-month.
The Canadian dollar began the new month on the front foot, with the currency this week’s outperformer.
At the start of the week, crude oil performance was the primary driver of price action as the commodity-linked Dollar reacted to sharp fluctuations on changing oil market dynamics.
However, data releases also helped it to gather momentum ahead of next week’s Bank of Canada policy meeting; with whispers for a move increasing.
Trade data alongside a strong jobs report changed a high likelihood of a Bank of Canada rate hike next week into a virtual certainty. Canada added 45K jobs in the month compared to 10K expected and that boosted the implied probability of a hike in the OIS market to 93% from 83%.
Ahead, Canadian housing is a key theme for economic releases this week, with both housing starts and new house price index on the docket.
NEW ZEALAND DOLLAR
It was a mostly softer week for the New Zealand Dollar amid sharp declines in the price of crude. It showed little reaction to the latest NZIER Quarterly Survey of Business Opinion, showing Q2 business confidence held steady with a net 18%, and the weekly Global Dairy Trade auction recorded a 0.4% drop as the average price came in at $3,303 per tonne.
The Swedish Krona softened after the Riksbank left rates unchanged and removed its easing bias as expected but failed to deliver any meaningful hawkish rhetoric and any notable change in its projected interest rate path.
However, the Krona retraced its losses following upbeat results from the Swedish industrial sector, with industrial production expanding more than the expected 2.1% on a monthly basis in May and jumping 8.0% over the last twelve months.
Inflation figures headline Sweden’s data calendar this week.
The Norweigan Krone was lower last week weighed by sharp declines in the price of crude oil.
Data provided little support despite industrial production increasing for the fifth straight month in May and the manufacturing PMI jumping to a five-year high.