The Dollar last week continued to inch higher, with the trade-weighted index up 0.7% to its highest level since mid-January 2017 thanks in part to some decent US macro data. While PCE core – an inflation gage which the Fed closely tracks – was unchanged in July at 1.6% yoy, durable goods orders jumped 2.1% mom in July (the largest increase since August 2018) and consumer confidence remained high in August, falling by far less than expected.
Sterling had a very choppy week, news that Prime Minister Johnson had successfully suspended parliament for five weeks, from 9-12 September to 14th October, dominatied the headlines. While there is broad agreement that Johnson is trying to curtail parliament’s ability to block a no-deal Brexit and time is running out for pro-Remain parties and politicians to try and keep the UK within the EU, the Sterling trade weighted index ended the week broadly unchanged, albeit at still depressed levels.
The Euro shed 0.4%, ending the week at the low end of a narrow 0.8% one-month range, on the back of bleak Eurozone macro data. Eurozone core CPI-inflation edged lower to 0.9% yoy in August while the German IFO business climate index slumped to 94.3 in August – its lowest level since mid-2012 – from 95.8 in July, increasing the odds that the German economy was in recession in Q3 and the pressure on the ECB to announce monetary policy loosening measures.
The Swiss Franc weakened 0.5% to its lowest level in three weeks, with markets seemingly continuing to taking profit on long Swiss Franc positions as concerns grow that the Swiss National Bank may no longer be willing to tolerate such a strong currency.
However, the biggest loser last week was the Kiwi Dollar which was down nearly 1% in trade-weighted terms. The currency has now depreciated 4.4% in the past six weeks with markets pricing in the possibility that the RBNZ, which has already cut its policy rate 75bp since May, will be forced to ease rates further.
