The US Dollar once again resumed its climb after having been stable in the previous week and it has rallied further today. US data remains strong on the whole, while Federal Reserve members continue to blow hot and cold about the possibility of another two hikes before end-year. The Swiss Franc was largely range-bound but has also made small gains today.
For Sterling, the Euro and Australian Dollar it was a case of more of the same. Sterling was a tad weaker within a still narrow range with Brexit negotiations ultimately over-shadowing UK macro data and the spectre of an August rate hike. The Australian Dollar was also broadly unchanged despite a rapidly weakening Chinese Renminbi. The Euro continued its impressive recovery with markets seemingly taking some comfort from the European Council leaders’ joint action plan for the pressing issue of immigration. Conversely, the New Zealand Dollar’s losses extended with the NZD trade-weighted-index now at a five week low.
US Dollar
The Dollar TWI made small gains last week and is now within only 0.1% of the 15-month reached on 27th June. US macro data were mixed. Core durable goods orders contracted 0.3% in May but US personal income, spending and inflation data were robust. US measures of core Personal Consumption Expenditure (PCE) inflation rose higher in May, with PCE and market-based PCE inflation hitting five year highs of 2.0% yoy and 1.7% yoy, respectively.
Markets and it would seem FOMC members themselves remain undecided as to whether the Fed will hike once or twice more this year. The geopolitical backdrop is probably not helping. The trade-war between the US and China shows no sign of abating and this is weighing on US and global equities but markets seem at this stage confident that the US economy (and Dollar) have enough support.
Euro
The Euro TWI appreciated to its strongest level since mid-April on Friday and has in the past 24 hours risen a little further. The EUR/USD cross remains very choppy around 1.16 but the Euro is performing well against the currencies of the Eurozone’s other main trading partners. The leaders of the 28 EU member states, which met on 28-29 June, seem to have said and done enough to assuage concerns about the pressing issue of immigration into Europe and German Chancellor Merkel appears to have for now won her battle with the ruling coalition’s CSU party. The Euro TWI is now at the top end of its year-to-date range but it may still take stronger Eurozone growth and inflation data to push the Euro through this range.
Sterling
Sterling gradually weakened for most of the week but ultimately remains within a very narrow range. Professor Haskel, who will replace hawkish MPC member McCaffterty on 1st September, was cautiously dovish in his testimony to the Treasury. Adding to the weight on Sterling was growing evidence that Prime Minister May’s government is well behind the curve in terms of Brexit negotiations.
Sterling did recover half of its weekly losses on Friday after the release of final GDP data for Q1 showing that growth had been revised to 0.2% qoq from 0.1% qoq. This is ultimately scant consolation as UK economic growth remains slow compared to other developed nations and markets are still only pricing in a 66% probability of the Bank of England delivering a 25bp hike at its August policy meeting.
New Zealand Dollar
There was little respite for the Kiwi Dollar which weakened a further 1.2% last week. Macro data remain soft and it remains uncertain to what extent the new government will try to discourage foreign investment and property ownership in New Zealand. The RBNZ is a long way from even considering a rate hike and markets seemingly have little appetite to go long the Kiwi Dollar even at these levels.
