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Market News – 24 July 2017

STERLING

Sterling closed lower against the major G10 currencies last week, as second round Brexit talks commenced amid whispers of a divided UK Cabinet with the Bank of England likely to stand pat on interest rates for the time being. On Tuesday, CPI data came in below estimates, challenging the notion of a Bank of England hike in August.

Thursday’s strong retail sales aided the Pound, however doubts toward Brexit remained at the forefront of investors’ minds and comments from the Trade Minister provided an air of caution after stating that the UK could survive without a deal.

For the week, the Pound lost 0.8% versus the US Dollar, 2.5% versus the Euro and 2.0% versus the Japanese Yen.

EURO

It was positive week for the Euro, with heightened expectations of the European Central Bank starting a QE tapering towards the end of the year keeping demand for the shared currency strong.

On Thursday, the Euro surged against most of its G10 peers after ECB President Draghi’s press conference in which he signalled the bank would discuss language on bond purchases in the autumn. He also highlighted that the growth outlook is broadly balanced.

Bullish Euro spec positions have surpassed previous highs seen in 2013, helping it gain 11% against the US Dollar in 2017.

For the week, the Euro gained 1.7% versus the US Dollar, 2.5% versus the pound and 0.4% versus the Japanese Yen.

US DOLLAR

The US Dollar fell against most of the G10 currencies last week with the USD Index plunging to a fresh 12-month low on more political headwinds for the US, stemming from reports US special counsel Robert Mueller is investigating the business transactions of Donald Trump and some of his advisors.

The Dollar was also hit after the collapse of a Republican healthcare bill, casting renewed doubt on US President Trump’s clout and ability to follow through with his stimulus plans.

JAPANESE YEN

The Japanese Yen strengthened against most of the major G10 currencies last week as the renewed political headwinds for the US triggered a fresh wave of global risk aversion trade, supporting the Yen’s safe haven appeal.

In the BOJ space, the central bank stood pat on policy in a widely expected move, with YCC parameters left unchanged. The meeting’s dovish tilt came when the BOJ’s forecast for Japan’s target 2% CPI to be hit was also pushed back to 2019 from its previous 2018 projection. Inflation forecasts were also revised down, while GDP forecasts were revised up.

SWISS FRANC

The Swiss Franc was one of the stronger G10 currencies last week. Weak risk appetite kept the demand high for the safe haven Franc, with global equity markets slipping from record levels amid renewed doubt on US President Trump’s ability to follow through with his stimulus plans.

In other news, the SNB continued to refrain from the recent hawkish shift we have seen at other major central banks, while Switzerland’s trade surplus decreased in June, as exports fell faster than imports.

AUSTRALIAN DOLLAR

The Australian Dollar was one of the weaker G10 currencies last week, despite a strong start. The Aussie saw gains after a slew of better than expected Chinese data releases, and upbeat RBA minutes that arguably signalled the start of a tightening cycle.

Rising iron ore prices also underpinned the commodity related currency, before Friday’s comments from RBA Deputy Governor Debelle who stated that there is no automatic reason to conform to recent hikes abroad. Many analysts had flagged that hawkish central banks could see the RBA move earlier than necessary, however, Debelle’s dovish comments were clearly taken notice of.

CANADIAN DOLLAR

The Canadian Dollar fell against most of its G10 counterparts last week, as oil prices tumbled on reports that OPEC supply for July is likely to exceed June’s number, and take output to over 33 Mln barrels a day. This is likely to raise scepticism about the effectiveness of the OPEC production cuts as officials gather for meetings.

Data-wise, Canadian CPI and retail sales were the only pieces of tier one data on the agenda; with a large beat in June retail sales, further supporting the strength of the Canadian economy.

NEW ZEALAND DOLLAR

The New Zealand Dollar had a mostly positive week after recovering from an early loss on disappointing CPI figures. The Kiwi saw a clear bid in Friday’s session, as comments from New Zealand’s Finance Minister Joyce stated that New Zealand firms are coping well with the Kiwi at current levels further adding that a strong Kiwi dollar reflects strong New Zealand economy and he is unperturbed by New Zealand dollar strength.