Hunt warns odds of a no-deal Brexit have increased
STERLING
Sterling fell to its lowest level against the US Dollar since last June on Wednesday at 1.2662 mid-market. The pair nudged back above $1.27 relatively swiftly however with stronger-than-expected CPI and retail sales data providing support.
There was not much to cheer on the Brexit front with UK Foreign Minister Hunt warning that the risk of a no-deal Brexit has been increasing. Car manufacturer Ford, only months after stating Brexit negotiations were “positive”, has now stated that it will take ‘’whatever action is needed’’ after posting a £760 million drop in European earnings. The warning comes as concerns increase that Theresa May does not have the ability to win parliamentary backing for any deal.
Looking ahead, government borrowing figures and CBI data are out tomorrow, more CBI data on Thursday and mortgage approvals on Friday.
US DOLLAR
The Dollar Index rose to a 14-month high on Wednesday at 96.99 as emerging market currencies tumbled. Losses followed however with weaker data released on Thursday providing a weight and comments from President Trump somewhat less critical of the recent Dollar strength. Investors also took note of reports that the US will urge China to boost their currency in trade talks this week.
According to CTFC, speculators have been piling into the market over recent months, with support (bets) for the US Dollar currently at three-year highs. With trade-war tensions between the US and China expected to weigh on economic growth, any de-escalation in talks this week may stall the Dollars advances.
Looking ahead, the FOMC minutes are out Wednesday alongside existing home sales, new home sales plus manufacturing and service PMI are out Thursday followed by durable goods on Friday.
EURO
EUR/USD reclaimed the 1.14 handle on Friday having dropped to its lowest level since last June at 1.1301. Euro Zone CPI data released on Friday was unrevised from the flash readings and largely ignored. EUR/USD is little changed this morning at around 1.1415.
Looking ahead, manufacturing and service PMI prints are out on Thursday alongside consumer confidence and the ECB minutes.
JAPANESE YEN
The Japanese Yen has been at the mercy of broader risk sentiment rather that domestic impulses in recent trading sessions. The Yen finished the week on the front foot as the Turkish Lira slumped on Friday and is little changed this morning at 110.62.
This week, manufacturing PMI is out on Thursday while CPI figures are due on Friday.
SWISS FRANC
EUR/CHF fell to 1.1242, its lowest level since July 2017 but saw some upside heading into the weekend as risk sentiment improved and the Swiss Franc lost its safe-haven appeal. Comments from SNB board member Zurbruegg may also have played their part after he said that negative rates and interventions are still needed.
EUR/CHF touched a one-week high on Friday at 1.1396 but has eased back this morning to around to 1.1362.
Looking ahead, trade figures are out tomorrow and industrial orders on Thursday.
AUSTRALIAN DOLLAR
There was not much reaction to comments from RBA Governor Lowe and Assistant Governor Ellis on Friday as they both signalled rate increases were still some way off.
AUD/USD is trading around 0.7300 this morning having touched a one-week high on Friday at 0.7321.
CANADIAN DOLLAR
The Canadian Dollar finished last week with a bid, rallying sharply on Friday after Canadian CPI posted a notable upside surprise (+3.0% v +2.5%). NAFTA related headlines may also have provided support after US Trade Representative Lighthizer said he sees a breakthrough in the coming days.
USD/CAD is little changed this morning at around 1.3068.
NEW ZEALAND DOLLAR
Some support emerged for the New Zealand Dollar heading into the weekend as risk sentiment improved and US-China trade relations appeared to improve slightly – China are expected to send a delegation to Washington next week.
NZD/USD touched a seven-day high overnight at 0.6643 but has eased back to trade around 0.6615.
On the docket this week, retail sales tomorrow and trade data on Thursday.
SWEDISH KRONA
Last week was not the busiest for the Swedish Krona although it finished stronger than its Norwegian counterpart. Finance Minister Andersson warned on Thursday that there are risks to the economy, but the government also raised their 2018 GDP forecast to +2.9% from +2.6%.
EUR/SEK surpassed 10.5 on Friday (highest level since May 8th) although this proved short lived while the pair has picked up this week at around 10.465.
NORWEGIAN KRONE
The Norges Bank left the key policy rate on hold on Thursday and repeated the view that it would likely rise next month. The Krone was largely unresponsive to the initial release but weakened into the weekend with EUR/NOK moving above 9.68 on Friday to its best level since May 3rd.
Thursday’s GDP data will likely be the main focus for investors this week ahead of unemployment on Friday.
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