The Pound continued its resilience ahead of Thursday’s general election, but fell sharply after exit polls correctly predicted a hung parliament – pushing GBP/USD to its lowest level since April 18th.
Some buyers emerged Friday as it became clear that prime minister Theresa May was to try and form a government with the Northern Irish DUP and press ahead with Brexit negotiations. However, we see little light on the horizon in the short term, given the already-tense relationship with Europe after some of the recent exchanges, notably from Brexit minister David Davis as well as the prime minister herself.
For the week, the pound lost 1.2% against the US Dollar, 1.3% against the Euro and 1.2 % against the Yen.
This week, focus will be on inflation, employment and retail sales stats which are all due for release ahead of the Bank of England policy meeting on Thursday. Government developments will also play a part in driving markets.
The Euro was mostly lower last week, as ECB policymakers left rates and QE unchanged. As expected, inflation forecasts were downgraded, with President Draghi signalling that inflation in the region remains tepid, overshadowing improved prospects for the economy.
On the data front, we saw upbeat Euro Zone Sentix investor confidence and above estimate final first quarter GDP data which failed to provide much fresh support for the single currency.
This week, EU wide CPI at the end of the week is standout, after the aforementioned ECB meeting.
The US Dollar rose against most of the major currencies last week, with the recent US jobs report enough to keep a June interest rate hike on track this week.
A tame testimony from ex-FVI director Comey also saw the Dollar extending its gains against nearly all G10 currencies, as there was no big revelation.
This week, focus will be on the FOMC meeting on Wednesday, which is widely expected to result in a 25 basis point rate hike as the Fed maintain course for normalisation.
The Yen saw a modest move higher against most of the major G10 currencies last week. Safe-haven flows were evident on rising geopolitical tensions and nervousness ahead of Thursday’s key risk events.
However, risk sentiments in Asia were resilient despite the shock hung parliament emerging in the UK elections as equity bourses traded in the green, treasury futures pared early gains and the Yen moved lower against major peers besides the Pound.
Looking ahead to this week’s BOJ decision, we suspect the market will continue to speculate just how the BOJ intends to tweak its guidance which should keep the Yen supported for now. A report last Thursday suggested that the BOJ will tweak its guidance to acknowledge that it is considering QE exit plans but at the same time stress that an exit remains some way off.
The Swiss Franc fell last week despite the unemployment rate holding steady at a seasonally adjusted 3.2% and consumer price inflation accelerating unexpectedly in May.
Safe haven flows were evident early in the week after the London terror attacks, but risk sentiments were pretty resilient in the face of the UK election result and tame Comey testimony.
The Australian Dollar rose last week following stronger Chinese data and an on-hold/neutral RBA. For the record, the central bank judged steady policy consistent with growth and inflation targets. The RBA, however, said that an appreciating Australian Dollar would complicate economic rebalancing while it remained concerned over the high level of Chinese debt, which poses a medium-term risk.
The Canadian Dollar rose last week, helped by Friday’s strong jobs report which was further evidence that a moderate, slow-paced recovery could be developing. There are several external factors weighing on the domestic economy and the Canadian Dollar, but losses in oil prices should be, and perhaps have been tempered by the recent BoC statement which suggests the adjustment to current levels, is largely complete.
NEW ZEALAND DOLLAR
The New Zealand Dollar moved higher against most of the major G10 currencies last week. It gained impetus from an upbeat assessment of the New Zealand economy by the Treasury, showing employment and retail sales growth.
The Swedish Krona fell last week after industrial production growth eased unexpectedly in April. Industrial production climbed a calendar-adjusted 0.8% year-on-year in April, much slower than the 3.6% rise in March.
The Norwegian Krone fell against most of its G10 counterparts last week last week, weighed by declining oil prices.
Norway’s consumer price inflation also eased in May, but industrial production increased for the fourth straight month in April.