Major developed currencies made gains last week against a slightly weaker Dollar and weaker
emerging market currencies. Sterling hit a new post-referendum high against a basket of
currencies, the Australian Dollar is at a one-month high and the Euro and Kiwi Dollar made decent gains early last week before fading somewhat. The Swiss Franc weakened further and late last week hit its weakest point since it was revalued in mid-January 2015.
The war of words between the US and China over import tariffs has taken back stage for now and coordinated US, UK and French airstrikes against the Russia-supported Assad regime in Syria were the lead story. Relations between the west and Russia continue to deteriorate and geopolitical tensions have kept choppy equity markets on their toes.
US Dollar
The glacial pace of Dollar depreciation extended last week with the Dollar on Wednesday hitting a 2-month low against a basket of currencies of the United States’ main trading partners. The US economy appears robust and markets are pricing in 51 basis points of rate hikes for the remainder of the year. But this is seemingly proving insufficient to support the Dollar with markets seemingly more comfortable betting on the Euro and Sterling.
Sterling
Sterling continues its metronomic push higher, with the Sterling index hitting a new high since the referendum on EU accession in June 2016. Markets are seemingly looking beyond mixed macro data, which are being partially blamed on very cold and wet British weather in recent months, and still pricing in an 80% probability of a 25bp rate hike on 10 th May. It would likely take a string of very disappointing numbers this week for markets to start thinking that the Bank of England may wait until Q3 2017 before hiking interest rates. There has been little Brexit-related news in recent weeks and Prime Minister Theresa May appears to have somewhat cemented her authority on a divided cabinet and parliament which at the
margin may be providing some support to Sterling.
Antipodeans
The Australian Dollar appreciated about 1% last week, likely buoyed by strong commodity prices and signs that a war of words between the US and China over trade may not escalate into a full-blown trade war. If Chinese GDP growth for Q1 2018 is confirmed at 6.8% yoy this may provide some further support for the Australian Dollar given the strong linkages between the Australian and Chinese economies.
