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Market News – 18 September 2017

STERLING

Sterling was the strongest G10 currency last week following an unexpectedly hawkish statement from the Bank of England. The majority of the Monetary Policy Committee are of the belief that if the economy continues to follow a path consistent with the prospect of an erosion of slack, along with a gradual rise in underlying inflation pressure, then some withdrawal of monetary stimulus is likely to be appropriate.

Thursday evening saw confirmation of the hawkish tone from the BoE, with Governor Carney saying that the probability of a hike has increased and that he’s among the majority of the MPC with the view that policy may need to be tightened in the coming months.

MPC rhetoric continued Friday, with dovish policy maker Gertjan Vlieghe expressing support for the bank’s aforementioned policy statement regarding raising interest rates in the foreseeable future.

For the week, Sterling gained 3.1% versus the US Dollar, 3.7% versus the Euro and 5.9% versus the Yen.

Looking ahead, Brexit negotiations will remain in focus, along with retail sales which are due to be released on Wednesday.

EURO

The Euro fell against most of its G10 peers last week, with a raft of ECB rhetoric for investors to digest.

On Monday, Governing Council member Cœuré warned that exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook.

Elsewhere, Nowotny suggested stimulus removal must be gradual. Hansson said very gradual normalisation has begun and Knot was most hawkish, stressing that lengthy monetary easing is diminishing returns. In addition, Lautenschlaeger said she thinks conditions are in place to allow for a rise in inflation while on Friday she added that a decision to scale back on bond purchases from January should be made now – striking a more hawkish tone than her Governing Council peers.

Macro releases failed to generate much reaction – the Euro Zone trade surplus shrank to €18.6 Bln in July from €21.7 Bln in June, while labour costs grew 1.8% year-on-year in the second quarter.

US DOLLAR

The US was mixed last week amid a raft of data ahead of the Federal Reserve’s interest rate decision this Wednesday.

A slightly firmer CPI report on Thursday triggered Dollar buying however, the positive tone was quickly dampened on Friday after an unexpected contraction in both US Retail Sales and Industrial Production resulted in some unwinding.

The Fed also stated that Hurricane Harvey is estimated to have reduced the rate of change in total output by roughly 0.75%.

Confidence out of Washington in regard to the upcoming Tax Reform also aided the Dollar, with reports stating that a republican consensus tax plan will be released next week.

Looking ahead, the main event this week is the FOMC meeting on Wednesday.

JAPANESE YEN

The Japanese Yen was one of the weakest G10 currencies last week, with North Korea firing another missile which passed through Japan’s airspace before landing in the Pacific Ocean. This initially prompted Japan to issue an emergency warning for its residents to seek shelter, while there were also reports that South Korea conducted its own missile firing test as a show of readiness.

The Yen’s safe-haven flow has become a concern of late, as threats against Japan could lead to traders looking for other safe-haven assets.

SWISS FRANC

Domestically, the SNB slightly altered their rhetoric in the unchanged Interest Rate decision on Thursday, removing the term ‘’significantly overvalued’’ and replacing with ‘’remains highly valued’’ and stated that they will remain active in the currency market if necessary.

AUSTRALIAN DOLLAR

The Australian dollar fell against most of its G10 peers last week, with mixed data, base metal weakness and RBA comments all playing their part.

Data releases showed a stellar August jobs report, with employment rising 54.2k, and the bulk of it coming from full-time employment, while the unemployment rate stayed at 5.6% as expected, and the participation rate rose to 65.3%.

CANADIAN DOLLAR

A pickup in crude oil prices was seen boosting demand for the commodity-linked currency. US crude topped $50 a barrel for the first time since August 10th, and Brent hit its highest level in five-months driven by refinery restarts, rising global oil demand estimates, and talk among OPEC producers of extending the pact to cut global oil supplies beyond March 2018.

Looking ahead, Canadian inflation and retail sales data will be released on Friday.

SWEDISH KRONA

The Swedish Krona gained last week despite headline consumer prices rising less than expected and second quarter GDP showing the economy grew less than previously reported in the second quarter, easing rate hike pressure.

On a positive note, Sweden’s unemployment rate dropped slightly in August.

NORWEGIAN KRONE

The Norwegian Krone fell against most of its G10 peers last week, despite Monday’s victory for Erna Solberg’s Norwegian coalition of predominantly centre right political parties, and a campaign fought predominantly on issues surrounding taxation and Norway’s energy sector.