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Market News – 26 June 2017

STERLING

Sterling ended last week mostly lower against G10 currencies after ranging views on rate policy and the ongoing turbulence of Brexit.

The Pound lost ground on Tuesday after Bank of England governor Carney stated that it wasn’t time for an interest rate adjustment yet and Brexit would be a big test for the UK’s economy.

There were also reports that the DUP were threatening to walk away from a deal to prop up UK PM Theresa May’s minority Conservative government.

However, the Pound pared some lost ground after BoE chief economist Haldane struck a notably more hawkish tone that many would have expected. The recovery was also helped by the concessions proposed by Theresa May in the EU Summit in Brussels which will allow three million EU citizens to stay in the UK permanently.

For the week, the pound lost 0.5% against the US Dollar, 0.4% against the Euro and 0.1% against the Yen.

Looking ahead, the UK data schedule sees the latest Q1 GDP calculation on Friday, with business investment levels also under the spot light.

EURO

The Euro ended a week of range trading mostly higher. The single currency began the week with a modest bid as French President Macron obtained a clear majority in the French legislative elections.

Data was light, with Friday’s stronger than expected French, German and pan-Eurozone manufacturing PMI’s offset by weaker services components.

Meanwhile, the ECB governing council maintains the current stance is appropriate, with QE tapering expected later this year. We also heard from German Finance Minister Schauble who highlighted that Brexit has bolstered sentiment towards Europe as have the recent run of encouraging data releases.

EU sentiment indicators are due on Thursday followed by the second reading for Euro wide inflation on Friday. We also get the German IFO survey and employment report at either end of the week.

US DOLLAR

The US Dollar ended the week mostly higher supported by plenty of rhetoric from the Federal Reserve. The hawks appear to still be in control at the US central bank but a fight may be brewing. Yellen and Dudley continue to see the rate path and normalisation on track, based on expectations that some of the data fade is transitory, but others still see no reason to increase interest rates with tepid inflation data.

Looking ahead, the US Dollar should have a little more to chew on this week as we get more colour on the economy from hard data rather than mere Fed speak. In the second half of the week, we get the revisions to Q1 GDP, coupled with the latest PCE index as well as personal income and spending.

YEN

The Japanese Yen fell against most of the major currencies last week. Disappointing trade figures and rising equity markets dragged down the Yen at the start of the week. Comments from BoJ officials provided further weight, with Iwata dismissing the need to raise interest rates any time soon, while Kuroda made it clear that the reduced pace of government bond purchases in recent months is not an attempt to exit the central bank’s quantitative easing program.

Data wise, we have Japanese retail sales on Wednesday followed by labour and inflation figures on Friday.

SWISS FRANC

The Swiss Franc strengthened last week amid positive data releases. The trade surplus came in above expectations at CHF 3.4 Billion while the monetary aggregate M3 grew 4.1% year-on-year in May.

Little attention was paid to SNB policymaker Maechler who spoke in favour for continued expansionary policy for the foreseeable future and stated the central bank would be willing to intervene in FX markets if needed.

AUSTRALIAN DOLLAR

The Australian Dollar fell against most of the G10 currencies last week, weighed by falling oil prices and Moody’s downgrading credit ratings of Australian banks.

The minutes from the Australian central bank were largely ignored, despite the RBA remaining confident that growth in the resource-rich economy will accelerate over coming years, shrugging off a weak first quarter result which saw the economy expand at its slowest pace since 2009.

CANADIAN DOLLAR

The Canadian Dollar was one of the worst performing currencies last week, weighed by falling oil prices and slowing CPI figures. Inflation in Canada decelerated in May on lower clothing and food costs, potentially cooling chatter in financial markets about an immediate Bank of Canada rate increase.

NEW ZEALAND DOLLAR

The New Zealand Dollar rose last week after the RBNZ kept interest rates at a record low but failed to complain about the currency’s recent strength

Looking ahead, we await the weekly GDT auction tomorrow.