Price action in major currencies was modest last week but reflected greater global risk appetite. The long-standing inverse correlation between the Dollar and equities was re-established, with global equities gaining 3.3% to their strongest level since 8th June and the “safe-haven” Dollar weakening 1% in trade-weighted terms. The Euro and Swiss Franc were broadly unchanged while the more risk-sensitive Sterling and Australian Dollar both gained about 1%. The Kiwi Dollar outperformed, closing the week 1.4% higher.
The pace of recovery in US economic activity in May-June, in particular the labour market, has seemingly surprised most analysts (and the Federal Reserve) and positive US macro data surprises are becoming the norm. Stronger-than-expected US macro numbers are dampening downward pressure on the Dollar but on the whole still mostly benefiting US and global equities.
The US Conference Board consumer confidence index rose further in June but the stand-out was the 4.8 million increase in public and private sector employment. This was materially higher than the consensus forecast of 3 million and 2.7 million jobs created in May. Nevertheless average hourly earnings fell by a further 1.2% mom and the US labour market has a long way to go to make up for the 20.7 million jobs lost in April.
The Euro, unlike Sterling, has remained remarkably stable in the past month in terms of both directionality and daily volatility. In trade-weighted terms it has remained in a 1% range and the EUR/USD cross continues to oscillate around 1.125. The Euro has shown little reaction to macro data releases, including stronger-than-expected German retail sales figures for May and labour market numbers for June.
