Major currencies, including the Dollar, Euro, Australian and Kiwi Dollars, posted modest gains last week largely as a result of weaker emerging market currencies. Sterling’s rally took it to within striking distance of the multi-month high reached in late March. Volatility in currency markets, however, remains pretty muted and most of the action was in US equity markets which have been buffeted by escalating tensions between the US and China and pressure on tech stocks.
US Dollar
The Dollar was up only 0.3% last week against the currencies of the United States’ major trading partners, with markets seemingly unwilling to take large long or short Dollar positions given the turbulent geopolitical background and little evidence so far that the Federal Reserve could hike more than expected this year. US President Trump upped the ante by stating that the US would consider further tariffs on Chinese imports worth $100bn per annum and the question is whether Chinese authorities will once again threaten retaliation.
Euro
The Euro made small gains throughout the week but is still short of the sporadic highs it has made in recent months. While turbulent politics have taken a back-step, slightly weaker German and Eurozone macro data are taking the shine off and holding back more forceful Euro gains. ECB President Draghi is unlikely to encourage any sustained and/or rapid Euro appreciation.
Sterling
Sterling inched up last week to within a fraction of the 21-month high reached in late-March and may hit new highs next week if MPC members and Governor Carney reinforce market expectation that the Bank of England will hike 25bp at its May policy meeting. But any Sterling appreciation is likely to be modest rather than rapid given still mixed macro data.
Antipodeans
The Australian and Kiwi Dollars reversed the losses they suffered the previous week but may have run out of steam given the respective central banks’ reluctance to talk up the prospects of higher interest rates in the near term and propensity to talk down their currencies.
