Developments in Washington were the main driver behind the US Dollar last week as House Republicans struggled to gather the votes needed to begin the repeal and replacement of the ‘Affordable Care Act’. This put the US currency on the back foot against most of the majors as investors worried that a delay in the healthcare bill would have a knock-on effect on plans for fiscal spending and tax reform. Late on Friday, House Speaker Ryan actually pulled the bill and comments from US President Trump would suggest they are going to move straight onto tax reform rather than dwell on the issue of healthcare. As such, the announcement prompted a modest bid into the US Dollar to end the trading week but this was not enough to swing the major pairs into positive territory versus the prior Friday’s close. For the week, the US Dollar lost 0.7% versus the Euro, 0.6% versus Sterling and 1.2% against the Japanese Yen.
Looking ahead to this week, focus again will be on any developments surrounding the failure to pass the healthcare bill and its implications for Trump’s plans for fiscal spending and tax reform. Fed Chair Yellen speaks on Tuesday while Evans, Powell, Kaplan, Mester, Williams and Kashkari are also expected this week. Data wise, US trade figures and consumer confidence on Tuesday, pending home sales on Wednesday, GDP on Thursday and PCE numbers on Friday will be the main focus.
It was a mixed week for the Euro. The pair found some modest upside on Monday following some dovish remarks from the ECB’s Visco who suggested they could shorten the duration between the end of QE and the first rate increase. Further gains followed on Tuesday and Wednesday as the latest polls suggested that Emmanuel Macron had won the first French Presidential TV debate. For the week, the pair gained 0.7% versus the US Dollar but lost 0.8% against the Yen and 0.1% versus Sterling.
The French election remains in focus this week and incoming polls will be closely watched to see if Emmanuel Macron can extend what is only a modest lead.
We saw some choppy price action in Sterling last week, prompted by a number of separate macro-economic releases and events. The UK currency was dented on Monday after the UK government confirmed they planned to trigger Article 50 tomorrow. This was followed by stronger-than-expected UK inflation data on Tuesday and retail sales on Thursday that both sent Sterling higher in currency space. We did see some slight weakness as news broke of the terrorist-attack in Westminster although this proved to be short lived. For the week, the pound gained 0.6% against the US Dollar and 0.1% against the Euro but lost and 0.6% versus the Yen.
Also of note, economists at Deutsche Bank warned this week that Sterling could lose around 15% against both the Euro and the US Dollar post Brexit as the impact of leaving the European Union is yet to be fully priced in.
Looking ahead, Brexit related news remains in focus although the UK government has now removed some of the uncertainty by offering a date for the triggering of Article 50. Data wise, lending data on Wednesday and GDP figures on Friday are in focus.
The Japanese gained against most of the major currencies last week, benefiting from risk adverse trading conditions as the US House of Representatives failed to pass the gather the votes needed to begin the repeal and replacement of the ‘Affordable Care Act’. Japanese trade figures on Wednesday failed to prompt much reaction in the Yen as the export surge was attributed to seasonal factors related to the Chinese New Year.
For the week, the Yen gained 1.4% against the US Dollar and 1.5% against the Euro while adding 0.8% against Sterling. The Japanese currency has also begun this week on the front foot, supported by losses across equity space in Asia. Domestically, we await Japanese retail sales on Wednesday and inflation data on Friday.
The Australian Dollar was lower against most of the majors last week, erasing modest gains seen early on. The currency did strengthen on Tuesday after Aussie house prices data came in well above market expectations for the last three months of the year. Gains were likely tempered by the minutes from the RBA’s latest policy meeting where officials said they are more concerned about the domestic housing market and less optimistic on the prospects for wage growth and inflation. The Australian Dollar lost 1.0% against the US Dollar this week.
The Canadian Dollar has softened slightly against the major pairs this week despite some better than expected domestic macro releases. Canadian retail sales surprised to the upside on Tuesday while inflation figures also surpassed market estimates on Friday but both figures only led to a brief period of strength for the Canadian Dollar. The Canadian Dollar added a modest 0.2% against the US Dollar this week.