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Market News – 2 October 2017

STERLING

The Pound rose against most of its G10 peers last week, aided by EU Barnier’s comments, stating that they are not there yet, but have seen some clarity on certain points following the fourth round of Brexit talks.

Elsewhere, Bank of England Governor Carney’s rhetoric in the 20th Anniversary of Independence was largely rebuffed by markets, with a lack of monetary policy commentary. However, chief economist Haldane said that any rise in borrowing costs should be seen as a good news story. His comments came amid speculation that the Bank’s Monetary Policy Committee will increase rates imminently. The next opportunity for a change in interest rates is the Bank’s MPC meeting on November 2nd.

UK data-wise, Friday was a disappointment, with a miss for GDP and a wider than expected current account deficit. However, we saw a strong CBI retail sales report and increases in consumer/business confidence.

For the week, the pound lost 0.9% versus the US Dollar, lost 0.1% versus the Euro and 0.65% versus the Yen.

EURO

German elections dictated the start of the week, with the Euro suffering after the weekend results despite Chancellor Merkel being set for a fourth term. Merkel’s CDU/CSU performed weaker than expected and has now undertaken coalition discussions.

Further weight was put on the shared currency, as EUR/USD was heavily sold as markets were led by President Trump’s Tax plans.

The Catalan regional government is holding an emergency meeting to discuss the next steps towards declaring independence from Spain a day after millions of Catalans voted. Preliminary results from Sunday’s vote showed that 90% of people cast their ballots in favour of independence.

At least 844 people and over 30 police were reported to have been hurt on Sunday after riot police stormed polling stations in a last-minute effort to stop the vote.

US DOLLAR

US Dollar strength was the theme of the week, following the announcement of Donald Trump’s Tax Plan. The Unified Tax Reform Framework would cut income tax rates, lowering the top rate to 35 percent. It doubles the standard deduction but eliminates personal exemptions. The plan would lower the corporate tax rate from 35 percent to 20 percent. It also allows a one-time repatriation of corporate profits earned overseas.

Federal Reserve Chair Janet Yellen did not fail to deliver on Wednesday, as investors re-focused on the heightened expectations of a December interest rate hike. Dollar bulls also feasted on reports, stating that US President Trump has met with notable inflation Hawk, Kevin Warsh, for the Fed Chair position.

In terms of data, firm Durable Goods Orders contributed to the surging Dollar, although there was minimal reaction to second quarter GDP which was revised up from +3.0% to +3.1%.

JAPANESE YEN

The Yen fell against most of its G10 rivals last week, as safe-haven flows slowed, despite the ongoing US-North Korea commentary. Also of note, the Bank of Japan Summary of Opinions showed one member saying that more easing is necessary to stimulate demand.

Data-wise, there was minimal reaction to Friday’s Japanese docket, headlined by a stronger than expected August CPI and a beat in August industrial production, although overall household spending and retail sales came in weaker.

SWISS FRANC

The Swiss Franc strengthened last week, after the German election created some concerns. The US-North Korea commentary also continued, with President Trump stating that the US is ”totally prepared” for a North Korea military option if it has to resort to that and that North Korea’s leader is acting ‘’very badly.’’

AUSTRALIAN DOLLAR

The Australian Dollar was lower against most of its G10 peers last week, as the growing risk of a hike in US interest rates lifted Treasury yields. In addition, mixed economic data and a retracement in iron ore prices ensured that the Aussie dollar ended the week on the back foot.

CANADIAN DOLLAR

The Canadian Dollar fell against most of the G10 currencies last week, with comments on Wednesday from Bank of Canada Governor Poloz triggering declines. He stated that an appropriate path for rates is very difficult to know because of a number of uncertainties around the inflation outlook. The unwinding also came after Canadian GDP fell to flat on Friday, contributing to a week of losses.

NEW ZEALAND DOLLAR

The New Zealand Dollar was one of the weaker G10 currencies last week. It struggled following the election results, and in line with Germany, despite a victory for the National Party, a majority was not secured. This places the next government at the hands of New Zealand First Party’s leader Winston Peters, who is due to meet Labour leader Jacinda Ardern later this week.

SWEDISH KRONA

The Swedish Krona fell last week, after the dovish Riksbank Governor Ingves was awarded another five-year term. Swedish retail sales also decreased slightly as expected in August, and producer price inflation eased.

NORWEGIAN KRONE

The Norwegian Krone was weaker versus its G10 peers last week after Norges Bank Governor Olsen said the central bank’s latest forward rate path implies that a first hike will take place near the summer of 2019.