FX markets have come to life in the past 48 hours, even if macro data have played second fiddle.
The Dollar trade-weighted index has appreciated to a 12-session-high but remains within its narrow one-month range of only 0.8%. The Dollar has appreciated against most of the currencies of the United States’ main trading partners, including the Euro and Sterling, with EUR/USD falling to 1.115 (its weakest level since end-May) and GBP/USD falling to 1.244. Dollar support has come from multiple sources. US President Trump and Congress yesterday reached a 2-year deal that raises the limit on government borrowing in order to cover spending and avoid another damaging government shutdown. There was also some partial good news on the growth front with the IMF revising its forecast for US GDP growth in 2019 to 2.6% while lowering
its global forecast to 3.2%.
Sterling has had a choppy session dominated by the announcement today that Boris Johnson had won the Conservative Party leadership contest and would formally take over as prime minister tomorrow. As expected, he convincingly beat his opponent, Jeremy Hunt, winning two thirds of the Conservative Party members’ votes. A number of ministers have resigned in the past 48 hours and more are expected in coming days as Johnson cobbles together his cabinet. The elephant in the room of course remains how the new prime minister will deal with the issue of Brexit, with the UK due to leave the EU, with or without a deal, in just 100 days.
The impressive rally in the Swiss Franc has also been making the news. EUR/CHF today fell below 1.10 for the first time in 2 years, with the trade-weighted index having appreciated 1.2% in the past fortnight alone also to a 2-year high. The normally dovish Swiss National Bank has seemingly stayed on the sidelines so far. However, there has been mounting speculation that the SNB could step in to stabilise or even weaken its currency by intervening in the FX market and/or cutting its policy rate regardless of
whether the ECB cuts policy rates at its meeting on Thursday.
The Kiwi Dollar, which has been on an impressive up-trend and hit on Thursday its highest level in trade-weighted terms since 1 April, has suffered a bit of a wobble in the past 48 hours, shedding 0.6%. This correction has come on the back of the release of a Reserve Bank of New Zealand report examining the implications of unconventional policy (read quantitative easing). The RBNZ has clarified that its analysis was still at
a very early stage but this did not stop the NZD/USD cross from falling to a 5-session low of 0.67.
