A key theme in recent weeks has been low and falling volatility in developed and emerging market currencies, including the Euro, Swiss Franc, Australian Dollar and even Sterling. Moreover, most major crosses have exhibited limited or no directionality, with the lack of major macro-data releases seemingly further curbing markets’ appetite for positional trades.
The Dollar did inch up to a 7-week high on Friday but has lost a bit of steam over the weekend and day-to-day volatility remains subdued. The Federal Reserve’s policy meeting minutes told markets what they already knew, namely that the policy rate is likely to remain on hold…until the Fed decides that US/global data and developments suggest otherwise, with another rate cut still far more likely than a rate hike. Underlying any consideration about the Fed is the issue of US-China trade negotiations which seem to be blowing hot and cold from one day to the next.
The Euro was broadly unchanged last week, despite the release of disappointing Eurozone PMI data for November, stuck in a 0.5%-wide range for the past three weeks. Markets are still waiting for ECB President Lagarde to make a headline-grabbing announcement.
Sterling lost a bit of ground last week, mainly due to the release on Friday of very weak PMI data for the UK manufacturing and services sectors. The preliminary November data point to a possible contraction in GDP growth in Q4 but ultimately it is the general election on 12th December which is driving UK markets for now. The ruling Conservative Party remains well ahead of the opposition Labour Party in opinion polls.
The Kiwi Dollar has broken out of its near-term range and appreciated to its strongest level since mid-September and volatility has picked up in the past month following the RBNZ’s unexpected decision to keep rates unchanged. Volatility remains modest in absolute terms but it is worth nothing that the RBNZ is prone to surprising markets.
The safe-haven Swiss Franc was the underperformer last week, depreciating 0.5% to a three-week low.
