Price action in developed FX markets was reasonably subdued last week – the Dollar, Euro, Swiss Franc and Australian Dollar ended the week broadly unchanged – with much of the newsflow focussed on equity market developments,
The Dollar, in trade-weighted terms, dropped 0.5% on 31st March and in the process erased two days worth of gains but has since been broadly stable. The S&P 500 managed to close at a new record high of 4,019.9 on 1st April, up 1.1% from 26th March, and S&P 500 futures have made further small gains since Thursday. Equity bulls have had the upper hand despite volatility in the benchmark 10-year Treasury and the sudden financial collapse last week of US hedge-fund Archegos. The latter is likely to result in substantial losses at a number of European and Japanese investment banks.
These two developments were ultimately overshadowed by a number of equity-positive events, including talk of the US government’s multi-trillion infrastructure spending plan, the “freeing” on 29th March of the Ever Given tanker in the Suez Canal which has now resumed normal operations and strong US macro data. US consumer confidence (which is critical to US household consumption), manufacturing activity and jobs creation were all far stronger than expected in March and point to a continued recovery in the world’s largest economy.
The only two clear outperformers last week were the more risk-sensitive Sterling and Kiwi Dollar which appreciated about 0.6% and 0.8%, respectively, in trade-weighted terms. Sterling likely benefited from small upward revisions to Q4 2020 and March manufacturing PMI data. However, it is seemingly still the still rapid pace of vaccination in the UK which is underpinning expectations of a domestic economic recovery in April and beyond and ultimately Sterling.
