The pound was one of the stronger G10 currencies last week. It began the week on the front foot as investors chose to ignore lower growth forecasts from the IMF and instead focus on reduced expectations of a cliff-edge Brexit scenario.
The bulk of last week’s gains came on Wednesday after UK GDP was confirmed at +0.3%/+1.7% while the it also benefited from the broadly risk positive trading.
Brexit uncertainty remains in focus this week although may play second string to the Bank of England policy announcement on Thursday.
For the week, the pound gained 1.1% versus the US Dollar, 0.4% versus the Euro and 0.7% versus the Yen.
Last week was a mildly positive week for the Euro. It began on the back foot however after Euro Zone PMI figures fell short of expectations on Monday before finding support from a strong German IFO report on Tuesday and hawkish remarks from the ECB’s Nowotny – he said he agrees with uber-hawk Weidmann that ”it is time to slowly go off the gas.”
The Euro finished the week on a positive note after German CPI surprised to the upside and Euro Zone confidence indicators saw wide improvement.
The US Dollar, as measured by the ‘Dollar Index’, posted a modest decline last week although this was enough to take it to a fresh 13-month low.
After a slow start to the week, the US currency fell sharply on Wednesday after the FOMC softened their language around inflation in the policy statement. They also gave a stronger indication that balance sheet normalisation was imminent which may have limited the decline.
Thursday saw a rebound after some better-than-expected macro releases although this was reversed on Friday after the Q2 GDP report as the GDP price index missed expectations and the employment cost index saw a notable slowdown. Political uncertainty may have also played its part last week as the Senate failed again to pass a healthcare bill.
The Japanese Yen saw a modest drop on balance last week. The Bank of Japan meeting minutes on Tuesday provided no real surprises with more attention paid to comments from incoming Board Member Suzuki who said debating an exit from QQE now would be dangerous – a comment that likely weighed on the Yen.
Deputy Governor Nakaso offered some balance when he expressed confidence on Wednesday that inflation will reach the central bank’s two percent inflation target around 2019.
Friday saw a data barrage from Japan with Tokyo CPI a touch stronger but retail sales on the soft side – neither of which prompted any notable moves.
The Swiss Franc was the weakest of the G10 currencies last week, losing notable ground against both the Dollar and the Euro with EUR/CHF now at its highest since the 1.20 floor was scrapped.
Analysts have debated as to the main catalysts last week although it was most likely a combination of factors at play. The improved political outlook in Europe coupled with the expectation of tighter ECB monetary policy sits juxtaposed to the SNB who still appear concerned with the threat of deflation.
Record high levels for US equity markets will also have limited the safe-haven appeal of the Franc this week although we did see a modest bid on Friday after news broke of the North Korean missile launch.
The Australian Dollar made modest gains against most of the major currencies last week, starting Monday on the front foot after the IMF hiked Chinese growth forecasts.
Weaker-than-expected Australian CPI did provide some downward pressure but this was countered by higher oil prices with US crude futures adding 8.5 percent for the week.
The Canadian Dollar was higher against most of the major currencies last week, supported by a weekly gain of over eight-percent for US crude futures.
Stronger-than-expected May GDP figures on Friday ensured the Canadian currency ended the week on the front foot although it did drop on Thursday amid reports that government officials are concerned with the recent hawkish shift by the Bank of Canada.
NEW ZEALAND DOLLAR
The New Zealand Dollar was relatively steady last week. Concerns over beef exports weighed early in the week after reports that a contagious disease has been found in 14 cattle, as did comments from RBNZ Governor McDermott who said that a weaker currency would help re-balance economic growth.
Positive signals from the Chinese economy also played their part, as did upward revisions to farm gate milk prices from Fonterra.
The Norwegian Krone gained against most of the major currencies last week, supported by notable gains in the oil markets with US crude futures adding 8.5% for the week.
Domestic data will also have provided support with industrial confidence and the unemployment rate both better than expected.