Sterling was mixed last week although the bias was tilted to the upside.
The currency jumped higher on Tuesday amid reports that the European Parliament is to call for Britain to have ‘privileged’ single market access after Brexit. Losses followed on Wednesday however after soft employment data and the leak of a government document that suggested a longer Brexit transition period.
Brexit uncertainty provided a further weight on Thursday after Prime Minister Theresa May struggled to agree the UK’s negotiating position with her cabinet although this was resolved on Friday, even if the EU are likely to reject their proposal for trade.
Also of note, the pound saw some upside after relatively upbeat remarks from Bank of England Governor Carney and Chief Economist Haldane regarding wages after regular pay rose by 2.5% year-on-year.
Last week, Sterling lost 0.5% versus the US Dollar (although it is up 0.7% this morning) but gained 0.6% versus the Euro and 0.2% versus the Japanese Yen. Data of note this week includes consumer confidence (February) Wednesday morning, Manufacturing PMI and Consumer Credit on Thursday. On Friday we will hear from Theresa May, where she will set out her vision for the UK’s post-Brexit relationship with the EU.
The Euro was among the weakest G10 currencies last week. Data from the region offered little support with weaker-than-expected readings for German ZEW and IFO, Euro Zone consumer confidence and Markit manufacturing and service sector PMI’s.
Thursday’s European Central Bank minutes prompted some volatility as some members expressed a preference for dropping the easing bias regarding the Asset Purchase Programme from the Governing Council’s communication. It was judged however to be premature.
Industrial and consumer confidence figures will be released tomorrow, inflation (CPI) on Wednesday, with Manufacturing (Thursday) and Produce Price Index (Friday) bringing the week to a close.
The US Dollar rose against all its G10 rivals last week with the Dollar Index (DXY) adding 0.9% versus the prior Friday’s close.
The focus for investors was Wednesday’s Federal Open Market Committee minutes in which members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate.
The Dollar rallied in response after a brief dip as investors took note of the upbeat language used to describe the economy and mention of upside risks.
Earlier in the week, support had come from rising US government bond yields ahead of a heavy issuance calendar for the US Treasury. Data releases may also have played a part after US Markit PMI surpassed expectations with manufacturing at its highest since October 2014.
Durable Goods orders (Tuesday), GDP an ISM manufacturing on Wednesday and Thursday respectively, are the notable data releases for the week.
Heavy losses were seen towards the start of the week for the Japanese Yen as investors looked through a fairly strong exports number released on Monday and gains in equity space on Tuesday.
The bulk of gains came on Thursday where we saw notable losses in European equity space although warnings on the Yen in the prior session from Japans top financial currency diplomat may have also been in focus. Small gains were seen on Friday after CPI data surprised to the upside.
The Swiss Franc softened slightly last week. Domestic impulses were limited – the trade surplus narrowed on Tuesday while industrial production jumped +8.7% YoY on Thursday.
The RBA minutes released on Tuesday provided no real surprises and therefore prompted minimal reaction. The Aussie currency rallied on Wednesday after Australian wage data surprised to the upside, but this proved short lived as it fell sharply as analysts pointed to the recent minimum wages rise.
The Canadian Dollar weakened last week. Domestic macro releases were the focus with notable losses seen on Thursday after retail sales fell short of expectations on Thursday. The Canadian Dollar clawed back some ground on Friday after CPI missed forecasts.
The Swedish currency fell sharply on Tuesday after January CPI data surprised to the downside. Heavy losses followed on Friday after the Riksbank minutes truck a dovish tone – several members expressed concern over the development of inflation in the period ahead and emphasised that downside risks need particularly close attention when determining the appropriate timing and speed at which to initiate rate rises.
The Norwegian Krone was mixed last week. Domestic impulses were limited with only an unchanged unemployment rate on Wednesday at 4.1% (f/c. 4.0%) to note. Oil prices added almost three-percent for the week and will have provided support.