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US-China trade talks set to resume

STERLING

The Pound hit its lowest level against the US Dollar in over two-weeks on Thursday at 1.2854 after the Bank of England voted 9-0 to leave the Bank Rate on hold at 0.75%. Growth forecast’s they predicted only three months ago were revised lower from 1.7% to 1.2%. The Pound strengthened during the press conference however as Governor Carney struck a more optimistic tone, providing a no-deal Brexit was avoided. The central bank also noted the need for higher rates in the future.

GDP data was in line with forecasts this morning at +0.2% in Q4, after a previous reading of +0.6% in Q3. Underlying business expenditure is of concern though, falling for the third quarter in a row as Brexit uncertainties continue to squeeze investment opportunities.

Theresa May is due to update the Commons with a revised deal this Wednesday, with MP’s having the opportunity to table amendments on Thursday. Should we (finally) see some developments, another meaningful vote will need to take place, potentially later this month.

Looking ahead, CPI is due on Wednesday and retail sales on Friday.

US DOLLAR

The Dollar Index saw a steady climb higher last week and has risen to a fresh five-week high this morning at 96.73. Broad risk aversion provided support to the Dollar as weaker-than-expected data releases were largely ignored. Comments from Fed Chair Jerome Powell were also relatively mundane and went under the radar.

Focus this week will be on the US-China trade negotiations plus the threat of another government shutdown. Intellectual property will be at the forefront of discussion while potential US tariffs on EU carmakers exporting to the US will also need to be watched over the coming weeks. Trump will use the threat of tariff hikes of up to 25% to leverage a share of the EU’s import quota for high-quality grain-fed beef, along with wine and soybeans.

On the data front, we expect several delayed releases to make an appearance while CPI figures are out on Wednesday.

EURO

The Euro softened last week with EUR/USD touching a fresh two-week low this morning at 1.1315. Weaker-than-expected macro data has provided a weight of late and this culminated in the EU Commission slashing growth forecasts for the region on Thursday, including Italy where GDP is expected to grow just +0.2% this year.

Euro Zone industrial production figures are out tomorrow, followed by Q4 GDP on Thursday and trade data on Friday.

SWISS FRANC

The Swiss Franc benefited from the risk aversion seen last week with EUR/CHF hitting a fresh two-week low on Friday at 1.1322. The pair extended slightly below that level overnight while there was little reaction to CPI data release in recent trade.

PPI data is expected Thursday and is the only release of note this week.

AUSTRALIAN DOLLAR

The Australian Dollar fell sharply last week with the bulk of declines coming on Wednesday in response to dovish remarks from RBA Governor Lowe who seemingly shifted to a neutral stance.

AUD/USD continued to edge lower into the weekend and hit a fresh five-week low on Friday at 0.7060.

NAB confidence indicators and Westpac are out tomorrow while RBA Assistant Governor Kent speaks on Thursday.

NEW ZEALAND DOLLAR

The New Zealand Dollar fell sharply on Thursday in response to weaker-than-expected jobs data with NZD/USD extending to a two-week low on Friday at 0.6729. The downturn in risk sentiment and lower oil prices also provided a weight as investors now look ahead to the RBNZ policy decision on Wednesday.

CANADIAN DOLLAR

The Canadian Dollar spent most of last week on the back foot, tracking declines in oil prices and weighed by broad risk aversion. Losses were cut on Friday however as USD/CAD pulled back from a two-week high after Canadian jobs data came in better-than-expected.

SWEDISH KRONA

Investors have become wary of a dovish surprise by the Riksbank on Wednesday after a string of weaker-than-expected data releases, including household consumption and service PMI last week. Riksbank Deputy Governor Jansson also warned that they would need to go slowly in terms of rate hikes.

NORWEGIAN KRONE

The Norwegian Krone has kicked off the trading week on the back foot with EUR/NOK rising to a fresh four-week high of 9.8194 in recent trade after CPI data surprised to the downside.

Data releases are sparse this week with only trade figures due for release on Friday.

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