The pound saw a modest gain on balance last week. Stronger-than-expected manufacturing production figures released on Friday provided a boost although data impulses from earlier in the week were to the downside after construction and service sector PMI fell short of expectations.
Brexit negotiations also appear to have stuttered with EU Brexit Minister Barnier criticising the UK’s approach to Ireland. A letter from the EU parliament also warned that it is more than likely the assessment on sufficient progress is unlikely to have been met by the October.
For the week, the pound gained 1.9% versus the US Dollar and 0.4% versus the Euro. Neither move is data driven and are both the result of a number of negative positions (bets against Sterling) being unwound, supported by expectations that the Federal Reserve will now refrain from raising rates again in December.
‘Super Thursday’ this week where the Bank of England releases its interest rate decision, the minutes and votes from MPC members in that meeting, along with the quarterly inflation report.
The Euro was mixed last week. Thursday’s ECB meeting was the main focus for investors where the Governing Council maintained their existing policy stance overnight. The Euro received plenty of attention, with Draghi noting that recent volatility represents a source of uncertainty which requires monitoring. It was also blamed for the lower inflation forecasts with the 2018 and 2019 estimate cut by one-tenth to 1.2% and 1.5% respectively.
The mild jawboning failed to dampen the Euro, with the single currency rallying during the course of the press conference and extending to a fresh two-and-a-half year high against the US Dollar on Friday.
The US Dollar fell against all G10 currencies last week, tracking losses in US government bond yields as the ten-year borrowing cost fell to a fresh post-election low.
The bulk of losses came towards the end of the week as investors began to contemplate the economic impact of hurricanes Harvey and Irma. Geopolitical concerns also played their part as the jawboning between the US and North Korea continued after the North Korean nuclear weapon test.
At the Federal Reserve, dovish remarks from Lael Brainard on Tuesday provided a weight as she called for a cautious approach to tightening policy. New York Fed Governor Dudley followed on Friday and Fed watchers have argued he offered a slightly less hawkish tone.
The Japanese Yen was one of the strongest G10 currencies last week. Increased geopolitical tensions were the main driving force behind the Yen rally after the North Korean missile test on the Sunday.
US President Trump caused more concern on Tuesday after he revealed he would allow Japan & South Korea to buy a substantially increased amount of highly sophisticated military equipment from the United States.
Domestically, Japanese GDP figures surprised to the downside on Friday but failed to dent Yen demand as investors favoured risk adverse assets heading into the weekend.
The Swiss Franc was one of the stronger G10 currencies last week, supported by safe-haven flows after the North Korean nuclear weapon testing.
GDP came in short of forecasts but failed to dent demand for the Swiss Franc while the unemployment rate held steady in August at 3.2%.
The Australian Dollar was mixed last week. Tuesday’s RBA announcement failed to generate much reaction as officials opted to keep their benchmark rate on hold at 1.5% – as was widely expected.
Stronger-than-expected Aussie current account data provided some support on Tuesday but this was countered by soft Aussie GDP figures on Wednesday.
The Canadian Dollar gained against most of the G10 currencies last week. The bulk of gains came on Wednesday after the Bank of Canada surprised markets with a twenty-five-basis point rate increase.
Officials said recent economic data had been stronger than expected while going forward, focus will be given to the evolution of the economy’s potential along with labour market conditions.
On the data front, Canada added 22.2K jobs on Friday (f/c. 19.0K) which will also have provided support.
The Swedish Krona softened last week, weighed by the Riksbank policy announcement on Thursday. Rates were kept on hold while they maintained their view that rates would remain at current levels until the middle of next year and were prepared to implement further monetary policy easing if necessary.
The Norwegian Krone was relatively stable last week. Manufacturing production beat expectations on Thursday and provided some support as did a weekly gain in oil prices.