Market News – 14 August 2017

Sterling was one of the weakest G10 currencies last week. The escalation of tensions between the US and North Korea weighed on the UK currency for most of the week while there were also a few domestic factors at play.

Sky news reported on Tuesday that Prime Minister Theresa May is expected to harden her Brexit negotiating position when she returns to Downing Street this week.

Data impulses were mixed with a beat for industrial production countered by soft construction output. We also heard from Monetary Policy Committee member Saunders, although his hawkish remarks were hardly a surprise after he voted for an interest rate hike at the recent policy meeting.

Markets expect official figures tomorrow to show that U.K. consumer inflation picked up again in July, accelerating to 2.7% for the year, after it dipped somewhat in June. As British workers’ wages continue to grow only modestly, the pace of inflation will be a key factor for economic growth in the months ahead.

For the week, the pound lost 0.2% against the US Dollar, 0.6% versus the Euro and 1.6% versus the Yen.

It was not the busiest week for the Euro with few notable developments for the single currency to work with.

The Euro benefitted from the rising tensions between the US and North Korea due to its status as a funding currency although gains were modest.

The European Central Bank will publish the minutes of its July meeting on Thursday, and investors will be watching for any clues about how the ECB plans to unwind its quantitative easing program. ECB President Mario Draghi said after the July meeting that the ECB would discuss QE in the fall.

Last week was mildly negative for the US Dollar. The Dollar Index finished the week with a small loss but held above the 15-month low set in the prior week.

One of the largest moves of the week came on Tuesday where the Dollar rallied following a record high for JOLTS job openings but losses followed on Thursday and Friday after PPI and CPI prints came in soft.

Comments from FOMC officials meanwhile failed to prompt much reaction as they stuck to their recent rhetoric – Kaplan called for patience, as did Kashkari, while Bullard maintained his view that the current rate is appropriate for now.

The Japanese Yen was the strongest of the G10 currencies last week. The main driver was safe-haven flows, stemming from the escalation of tension between the US and North Korea over their nuclear capabilities.

Closer to home, Japanese machine orders were much weaker that markets forecast and will have limited gains somewhat.

GDP second quarter figures came in above expectations at 4% annualized (Q2) and 1% Quarter on Quarter (Q2).

Like the Japanese Yen, the Swiss Franc strengthened last week, boosted by safe-haven bets.

Domestically, CPI figures were in-line for July while the unemployment rate was unchanged at 3.2% and prompted minimal reaction.

Domestic data releases were soft with Westpac consumer confidence and home loans falling short of forecasts. Chinese trade figures also disappointed with imports and exports below expectations.

Comments from RBA Governor Lowe on Friday had a similar impact after he bemoaned low wage growth, as did lower oil prices with US crude futures losing 2.4% for the week.

Lower oil prices provided a weight for the commodity currency with US crude futures losing 2.4% for the week.

Data impulses were stronger however with building permits and housing starts both beating expectations.

The RBNZ left rates on hold on Thursday which prompted a spike in the Dollar although this proved short lived and the Kiwi fell sharply after RBNZ Governor Wheelers intensified warnings over the recent strength of the currency.

Data impulses also provided a weight with manufacturing PMI, credit card spending and inflation expectations all lower than expected.

It was a quiet week for the Swedish Krona. Industrial production figures surprised to the upside on Thursday and helped the currency higher amid a lack of any other notable impulses.

The Norwegian Krone was little changed last week. Lower oil prices provided a weight with US crude futures losing 2.4% for the week. However, CPI figures surprised to the upside on Thursday and provided a modicum of support.