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Market News – 18 December 2017

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STERLING

Sterling was one of the weakest G10 currencies last week with uncertainty surrounding Brexit continuing to be the main focus.

Steep declines were seen on Friday after German Chancellor Merkel and EU Commission President Juncker warned the next stage of Brexit negotiations will be more difficult.

Rating agency Moody’s also warned that forthcoming trade talks will likely be difficult and there is a significant possibility of further deadlocks before a final agreement is reached.

Domestically, the Bank of England voted to leave the interest rate on hold on Thursday via a 9-0 vote and this also pressured Sterling. Providing support meanwhile was the stronger-than-expected retail sales report.

For the week, Sterling lost 0.5% versus the US Dollar, 0.4% versus the Euro and 1.3% versus the Yen.

EURO

The Euro was flat versus the US Dollar last week. The largest move came on Thursday where the single currency fell after the ECB left their policy stance on hold.

Draghi did reveal higher growth forecasts, but investors instead focused on his comments on inflation – “domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend”.

Macro releases meanwhile will have provided some support with stronger-than-expected Euro Zone industrial production and Markit PMI.

US DOLLAR

The Dollar Index was flat last week. We saw heavy losses on Wednesday after a soft-core CPI print and what was perceived as a dovish interest rate hike from the FOMC.

Retail sales offered some support on Thursday while the recovery continued Friday amid growing optimism surrounding US tax reform after Senator Rubio offered his support for the GOP bill.

JAPANESE YEN

Stronger than expected PPI data and core machinery orders provided support earlier in the week while manufacturing PMI also improved to 54.2 from 53.6.

There were some choppy movements on Friday meanwhile as the Yen gained on an 11-year high in the Tankan survey, before falling on a sources story that suggested a new dissenter at the BoJ prompted the central bank to adjust its communications to flag risks of additional easing.

SWISS FRANC

The Swiss Franc was little changed last week. The Swiss National Bank left their benchmark deposit rate on hold at -0.75% which prompted minimal reaction. Chairman Jordan later said in a press conference that they will not raise rates for a relatively long time.

CANADIAN DOLLAR

The Canadian Dollar was little changed on balance last week. We saw gains on Thursday after Bank of Canada governor Poloz said they are growing increasingly confident that the economy will need less monetary stimulus over time. He noted that the economy has made tremendous progress over the past year, and it is close to reaching its full potential.

Losses followed on Friday after October manufacturing sales fell well short of expectations.

NEW ZEALAND DOLLAR

The New Zealand Dollar was one of the strongest of the G10 currencies last week.

It began the week on the front foot after it was confirmed that former RRBNZ Deputy Governor (Head of Financial Stability) Adrian Orr would become the new governor – analysts have noted he is less dovish than former Governor Spencer.

We saw some weakness on Thursday after the New Zealand government cut their growth forecasts.

SWEDISH KRONA

The Swedish Krona weakened last week as concerns surrounding the housing market continue to linger. According to Valueguard, home prices fell 2.9% in November after a 3.0% drop in October while also posting their first year-on-year fall since 2012.

NORWEGIAN KRONE

The Norwegian Krone fell last week with losses seen on Monday after CPI surprised to the downside for November. We saw a bounce back on Thursday after the Norges Bank brought forward their forecast for the next rate hike to autumn 2018 (previously summer 2019).