Sterling got off to a slow start to the trading week with most UK markets closed yesterday and little Brexit related activity over the weekend. Recent Bank of England rhetoric has also been relatively uneventful with Carney sticking to his view last week that the first-quarter slowdown was temporary.
Investors will be on the lookout for any movement on the Irish border issue this week while lending data is out on Thursday and manufacturing PMI on Friday.
The Euro softened yesterday amid growing political uncertainty in both Spain and Italy and remains on the defensive this morning, with the Italy-German yield spread rising to a 5 year high of 232 basis points as investors sold off Italian bonds. The single currency initially welcomed the rejection of a Euro sceptic Finance Minister in Italy but later fell.
Political developments are likely to remain the main focus for investors this week although Thursday’s Euro Zone CPI data will also be closely watched with the core rate expected to bounce back to +1.0% from +0.7%.
The Dollar Index is trading at a new year-to-date high this morning. Investors are looking ahead to a busy data week with GDP due tomorrow, core PCE on Thursday and the payrolls report on Friday.
At present, markets are pricing in a 89% probability that the Fed raises rates next month but this could change by Friday’s close.
The Japanese Yen has begun the trading week as one of the strongest G10 currencies, boosted by safe-haven demand as political uncertainty intensified in Italy and Spain over the weekend. Recent data releases will also keep the pair on the back foot, most notably Friday’s soft Tokyo CPI data which is the prelude to the national release.
BoJ Governor Kuroda speaks tomorrow and is not expected to deviate much from recent rhetoric while retail sales are also due ahead of industrial production on Thursday and manufacturing PMI on Friday.
Eur/Chf dipped below 1.16 on Friday with the Franc boosted by safe-haven demand after US/North Korea talks broke down. The Swiss currency has eased back slightly to start the week as a summit now looks likely again. Swiss National Bank speakers are also due up this week with Chairman Jordan tomorrow and Board Member Zurbruegg on Thursday.
It’s a busy week for data as well with Thursday’s GDP and retail sales report the main focus.
The Australian Dollar has had a mixed start to the week, rising against the US Dollar but losing out to its antipodean partner. Falling oil prices will limit any upside while US-China trade tensions will also likely result in a cautious approach from investors. Building approvals are put tomorrow ahead of manufacturing PMI and new home sales on Friday
The Canadian Dollar has begun the trading week as one of the weaker G10 currencies, weighed by oil prices as they pare back from multi-year tops. Usd/Cad is up at its best levels since March ahead of a busy week in Canada with the Bank of Cnada rate decision due tomorrow and GDP on Thursday.
NAFTA related headlines also remain in focus although could dry up somewhat with US official possibly focused towards North Korea for the time being.
NEW ZEALAND DOLLAR
The New Zealand Dollar has begun the trading week on the front foot. The recent pullback in US government bond yields has aided the Kiwi Dollar along with other perceived riskier currencies. Gains may have been capped however by the retreat we have seen in the oil market from multi-year tops.
RBNZ Governor Orr speaks tomorrow ahead of confidence data on Thursday.
The Swedish Krona has started the trading week on the defensive, paring back gains seen on Friday where the Swedish Debt Office said they “will take a position for a stronger krona against the euro”.
Losses may have been capped by the stronger-than-expected retail sales data released yesterday although weaker confidence figures followed today. GDP data is out tomorrow and manufacturing PMI on Friday.
The Norwegian Krone has emerged as one of the best performing G10 currencies in recent weeks supported by hawkish central bank rhetoric. As other institutions seemed to pare back on rate hike expectations, the Riskbank has remained steadfast that rates will rise towards the end of the year after lowering their inflation target to two-percent.
Eur/Nok did dip below 9.5 last Wednesday for the first time since March but has found some support to start the week as oil prices eased back from their multi-year highs and sapped some momentum from the Krone. Looking ahead to this week, retail sales are out tomorrow ahead of manufacturing PMI and unemployment data on Friday.
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