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Market News – 22 January 2018

STERLING

Sterling was one of the strongest G10 currencies last week. The bulk of gains came on Wednesday despite an absence of any macro releases although we heard from Bank of England MPC member Saunders who said if the economy turns out broadly in line with his outlook, it is likely that interest rates will need to rise further over time.

Inflation figures were released on Tuesday where a soft core CPI print was balanced by stronger RPI and PPI for December. Weak retail sales followed on Friday where Sterling was one of the softest of the G10 currencies.

For the week, Sterling gained 0.9% versus the US Dollar, 0.7% versus the Euro and 0.5% versus the Yen.

EURO

The Euro was mixed last week. Focus was on the European Central Bank ahead of this week’s policy meeting although sources said on Tuesday that the Governing Council are unlikely to drop their pledge to continue buying bonds next week as policymakers need more time to assess the outlook for the economy and the Euro.

The single currency dropped on Wednesday after ECB Vice President Constancio said they see no inflation risks and should avoid choking off growth too soon. Ewald Nowotny later added that the strength in the Euro is not helpful.

Data wise, Euro Zone CPI was confirmed at the flash readings for December which promoted minimal reactions.

DOLLAR

The US Dollar weakened against almost all the G10 currencies last week with the Dollar Index (DXY) losing 0.5% versus the prior Friday’s close.

Multi-year highs for US government bond yields provided some support but were outdone by concerns of a US government shutdown and its potential impact on the US economy. The deadline was missed on Friday midnight as lawmakers failed to agree on a spending bill.

However, last night senate majority leader Mitch McConnell made a minor concession to allow a vote on immigration in February if democrats agree to fund the government.

Data impulses were mixed with US industrial production and initial jobless claims the highlights of the week while Michigan Sentiment dropped to its lowest since July on Friday.

At the FOMC, there were no real surprises as dove Charles Evans argued for less than three hikes while Kaplan argued more may be needed to keep the economy from overheating.

Also of note, the Dollar saw some upside after reports that Apple are to pay a $38.0 Bln tax bill to repatriate funds to the US.

JAPANESE YEN

The Japanese Yen was one of the stronger G10 currencies last week. Gains were seen on Friday following a Wall Street Journal story that suggested the Bank of Japan is optimistic about hitting its 2% inflation target within two years and are considering how best to communicate any possible policy changes.

Fears of a US government shutdown also boosted demand for safe-haven assets including the Yen alongside others such as the Swiss Franc.

Data wise, industrial production fell short of expectations on Thursday as did PPI on Tuesday, but stronger readings were seen for core machinery orders.

SWISS FRANC

Domestic impulses were limited with comments from SNB President Jordan in line with recent rhetoric as he noted the Swiss Franc remains highly valued.

Swiss PPI data released on Thursday showed an identical pace compared the prior month of +1.8% year-on-year.

AUSTRALIAN DOLLAR

The Australian Dollar was boosted by stronger than expected domestic macro data.

Australian home loans got the ball rolling on Wednesday, followed by a larger-than-expected increase in employment on Thursday. Chinese data will also have provided support after GDP and industrial production also surprised to the upside.

CANADIAN DOLLAR

The Canadian Dollar was one of the weaker G10 currencies last week, hampered by concerns regarding the future of NAFTA.

The Dollar also saw a sharp drop after the Bank of Canada policy statement hit the wires. Although the benchmark rate was hiked 25 basis points to 1.25%, they did reiterate a cautious approach to future adjustments was warranted and warned of uncertainties surrounding the aforementioned NAFTA negotiations.

NEW ZEALAND DOLLAR

The New Zealand Dollar softened on balance last week. Macro releases were generally on the soft side – NZIER business confidence dropped to -12 while Business NZ PMI also weakened to 51.2 from 57.7.

A weekly loss of around 1.6% for US crude futures may also have provided a weight.

SWEDISH KRONA

The Swedish Krona softened last week in what was a quiet week for domestic news.

Riskbank Deputy Governor Ohlsson said on Wednesday that the central bank is nearing the point of normalising monetary policy.

Data wise, household consumption quickened to +2.1% YoY in November from +1.5% in October.

NORWEGIAN KRONE

The Norwegian Krone was one of the strongest G10 currencies last week. Domestic impulses were limited with a sizeable trade surplus for December at 24.7 Bln the only notable release.