It was a choppy week for FX markets, with macro data playing second-fiddle to the gyrations in the Turkish Lira and the deteriorating relationship between the US and China. Ultimately most major currencies lacked clear direction with the Euro, Swiss Franc, Sterling and Australian Dollar broadly unchanged versus the Dollar while the Kiwi Dollar made some decent gains.
US Dollar
The Dollar was broadly stable in trade-weighted terms last week, unable to build on the previous week’s gains, despite survey data suggesting that US economic growth remained robust in July-August. FX flows into the Dollar, driven by global risk aversion and concerns about Lira-driven contagion, appear to have normalised as markets await the next instalments in the negotiations between the US on the one hand and Turkey and China on the other.
Euro
The Euro weakened marginally in trade-weighted terms but this was mainly due to the rebound in the (still very volatile) Turkish Lira.
Sterling
Markets ultimately paid little attention to mixed UK data for June and July. Headline CPI-inflation rose slightly to 2.5% yoy in July, the volume of retail sales was up a sizeable 3.5% yoy and the unemployment rate fell to just 4.0% in June. But core CPI-inflation did not budge from 1.9% yoy and real wages contracted slightly in July. Ultimately, these data are unlikely to really move the needle in terms of the Bank of England’s appetite to hike policy rates again before year-end while markets focus on Brexit-related developments.
New Zealand Dollar
The Kiwi Dollar made some decent gains last week, reversing part of the post RBNZ policy meeting weakness on 9th August, but it has again lost ground over the weekend. The RBNZ remains one of the more dovish of the major central banks and this is likely to act as a headwind for the currency.
