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Market News – 17 July 2017

STERLING

Sterling closed higher against the major G10 currencies last week after a soft start. It fell on Tuesday after BoE MPC member Broadbent sidestepped the opportunity to address monetary policy and instead chose to warn of the risks associated with reduced trade with Europe.

UK labour market indicators provided some support on Wednesday as average earnings excluding bonuses rose +2.0% year-on-year in May (f/c. +1.9%).

An interview with BoE McCafferty on Thursday lent further support to the pound after he argued they should consider unwinding the QE program earlier than planned. The momentum continued on Friday with GBP/USD up to a fresh 2017 high.

For the week, the pound gained 1.6% versus the US Dollar, 1.1% versus the Euro and 0.4% versus the Japanese Yen.

Tomorrow brings CPI data and governor Carney’s speech and Retail Sales on Thursday.

EURO

It was negative week for the Euro on balance, with suspected profit taking hitting the single currency, most notably against Sterling.

Investors have also begun to question whether the market may have got ahead of itself after comments made by ECB President Mario Draghi in Portugal a few weeks back.

A sources story via the Wall Street Journal provided some support on Thursday as it suggested Draghi would use a speech at Jackson Hole to prepare markets for a tapering announcement in September.

US DOLLAR

The US Dollar fell against most of the G10 currencies last week, weighed by dovish FOMC commentary and weaker-than-expected macro releases.

Dallas Fed Governor Harker set the tone on Tuesday when he said the recent slowdown in inflation had given him pause on raising rates. Lael Brainard followed later that day with a similar message as she argued they should see how the market reacts to reducing the balance sheet before deciding on rates.

Fed Chair Yellen testified to Congress on Wednesday and Thursday and also struck a dovish tone as she told lawmakers the federal funds rate would not have to rise all that much further to get to a neutral policy stance.

The Dollar index then fell to its lowest level since September 2016 on Friday after US retail sales and CPI figures fell short of expectations – the retail sales control group fell -0.1% M/M (f/c. +0.3%) while headline CPI slowed to +1.6% (f/c. +1.7%) from +1.9%.

JAPANESE YEN

The Japanese Yen strengthened against most of the major G10 currencies last week. It saw a mildly softer start however as Japanese machine orders missed on Monday although BoJ Goveror Kuroda provided some balance by offering little indication they were looking to ease back on stimulus measures.

We then saw some upside for the Japanese currency on Wednesday as US yields fell on dovish remarks from Fed Chair Yellen.

The Yen ended the week on the front foot as well after BoJ sources said they were likely to raise growth forecasts and the government upped their own forecasts for consumption, housing and capital expenditure.

SWISS FRANC

The Swiss Franc was one of the weaker G10 currencies last week. Safe-haven flows were limited as European stocks posted their biggest one-week gain since early May and US bourses hit record highs on Friday.

The SNB has also opted to refrain from the recent hawkish shift we have seen at other major central banks in recent weeks. Swiss PPI figures fell short of expectations on Thursday and will have done little to support the Franc.

AUSTRALIAN DOLLAR

Domestic macro releases, in the form of NAB business data, surprised to the upside on Tuesday while Chinese trade figures also beat on Thursday.

Oil prices gained just over five-percent for the week which underpinned all commodity related currencies while emerging market currencies were broadly supported by the pullback in US government bond yields.

CANADIAN DOLLAR

The Canadian Dollar was one of the strongest G10 currencies last week. The bulk of its gains came on Wednesday after the Bank of Canada hiked their benchmark rate by twenty-five basis points and offered a broadly positive outlook on the economy.

Also providing support was a gain of just over five-percent for US crude futures this week while better than expected Canadian housing starts may have also played its part.

NEW ZEALAND DOLLAR

The New Zealand Dollar had a mostly positive week after recovering from an early loss. The Kiwi fell sharply on Tuesday after New Zealand card spending data fell way short of expectations.

Stronger-than-expected Chinese trade figures then provided some support on Thursday while a weekly gain of just over five-percent for US crude futures will have also provide some upward momentum.

SWEDISH KRONA

The Swedish Krona rallied this week, supported by stronger than expected inflation figures on Thursday. CPI was steady at +1.9% year-on-year versus forecasts for +1.7%. The unemployment rate also fell on Monday to 7.2% from 7.3%.