The Pound was the weakest of the G10 currencies last week as the odds were slashed that UK Prime Minister Theresa May would leave Downing Street before the end of the year.
The Daily Telegraph reported on Thursday that May could be gone by Christmas as up to 30 MPs plot to oust her after her “disastrous” party conference speech. A separate story later added that there is a “50/50” chance they will confront Theresa May in the next few days, demanding that she steps down before the end of the year. Sterling saw a brief move higher on Friday after May stated that she has the ‘’full support of her cabinet’’.
UK macro data was mixed with manufacturing and construction PMI falling short of forecasts although services did improve. Consumer spending resumed its decline last month after a brief respite, signalling that a key part of the economy is continuing to weaken. Expenditure fell 0.3 percent in September, marking a fourth decline in the past five months. Spending on recreation and culture dropped the most since July 2013, while transport and communication and household goods also slipped.
For the week, the pound lost 1.9 percent versus the US Dollar and 1.4 percent versus the Euro.
The Euro was mixed last week after recovering from a soft start following the Catalan independence referendum. Clashes between protestors and police marred the vote while Catalan political leaders look set to press ahead with the declaration, defying orders from the Spanish constitutional court.
Providing support to the single currency was higher-than-expected Euro Zone PPI released on Tuesday. The Euro also saw a modest move higher on Friday after the ECB’s Villeroy said a reduction in quantitative easing is compatible with keeping accommodation.
The US Dollar rose against the majority of G10 currencies supported by better-than-expected macro data and renewed hopes for US tax reform.
On the data front, ISM manufacturing and non-manufacturing both rose to multi-year highs while construction spending, factory orders and durable goods all beat forecasts.
The Bureau for Labour Statistics Employment Report on Friday showed the US economy lost 33,000 jobs in September but this was attributed to the impact from hurricanes Harvey and Irma while other aspects of the report were much more encouraging – the unemployment rate dropped again to 4.2 percent from 4.4 percent while average earnings were stronger than expected at +2.9 percent year-on-year.
The Dollar lost ground towards the end of Friday’s session as US yields sunk on reports that North Korea were ready to test a missile capable of reaching the US western coast.
Trump ominously suggested over the weekend that following 25 years of failed diplomacy with North Korea, there is “only one thing that will work.”
While Trump did not specify what that “one thing” is, it stands to reason that the President is referring to some sort of military intervention.
The Yen rose last week against most of the G10 currencies. Safe-haven flows were evident early in the
week following the shooting in Las Vegas while a stronger Tankan manufacturing report also played its part.
The Swiss Franc softened last week. Manufacturing PMI improved on Monday but was countered by notable weak retail sales. Year-on-year CPI came in slightly higher on Friday at +0.7 percent versus a forecast of +0.6 percent.
The Reserve Bank of Australia left rates on hold on Tuesday as was widely expected but the statement weighed on the currency as they warned that the pick-up in economic activity and inflation could be slower than the current forecasts due to the strong Aussie dollar.
We saw further losses later in the week after RBA Board Member Harper said he sees scope for a rate cut.
Data wise, retail sales missed forecasts on Friday while a sizeable weekly loss for crude prices will also have provided a weight.
The Canadian Dollar was mixed last week. A weekly loss of over four-percent in US crude futures will have limited any gains. Comments from bank of Canada Deputy Governor Leduc also likely had a similar effect as he noted that the economic growth rate is likely to decline over the next few quarters.
The Swedish Krona strengthened last week. Manufacturing and services PMI both strengthened notably on Monday and helped the currency start the week on the front foot.
Comments from the Riksbank’s Floden also provided support after he suggested it is somewhat premature to withdraw some accommodation from the current domestic monetary stance.
The Norwegian Krone was mixed last week although the bias was to the downside. Heavy losses for crude prices had the Krone on the back foot from the outset with US crude futures losing over four-percent.
Manufacturing PMI and manufacturing production were also both softer than expected.