The Dollar was up 0.3% last week but has given up all these gains in the past 48 hours. Sterling made small gains despite the Brexit newsflow continuing to bamboozle markets. The Australian and Kiwi Dollars and in particular the Swiss Franc and Euro weakened with the ongoing recovery in emerging market currencies putting most developed currencies in the shade. The trade war between the US and China showed no signs of abating. Crude oil today reached a 4-year of $83/barrel on Iran concerns but global equity markets were broadly unchanged.
US Dollar
The Dollar was broadly stronger against developed currencies last week but lost ground to most emerging market currencies. The net result was a very modest 0.3% gain in the trade-weighted index which has been wiped out in the past 48 hours.
The Federal Reserve hiked rates 25bp as expected and signalled at least two more hikes next year. But this was not really enough to get a market already long Dollars excited, particularly as US macro data were mixed and concerns remain about the impact of the US-China trade war on the US and global economy. The US, Canada and Mexico announced overnight that they had reached a new trade deal to replace NAFTA but it is the Canadian Dollar and Mexican Peso which have so far benefited from this positive development.
Euro
The Euro weakened throughout the week, shedding 1.3% in trade-weighted terms, with headlines about the Italian budget and Brexit and weak Eurozone inflation numbers taking the wind out of the common currency’s sails. ECB President Draghi had said mid-week that Eurozone inflation was picking up but this provided only a temporary Euro boost. Other ECB officials played down inflationary pressures and were vindicated by a fall in core Eurozone CPI-inflation to only 0.9% yoy in September. While the ECB will this month start reducing its monthly bond purchases, as planned, the ECB still seemingly has no intent on hiking its policy rates until after next summer.
The Euro has weakened a tad further in the past 24 hours despite the release of data showing a fall in the Eurozone unemployment rate to 8.1% in August from 8.2% in July
Sterling
Sterling had weakened sharply on 21st September after EU leaders rejected out of hand British Prime Minister May’s post-Brexit plan. But the currency slowly recovered last week, despite downward revisions to UK GDP growth rates for H1 and still great uncertainty as to what fate awaits the UK in coming months.
The Conservatives started their annual conference yesterday and the prime minister is still under much pressure from cabinet members, her party, members of parliament and EU officials to ditch her current Brexit plan. She has so far stood firm and rejected Boris Johnson’s alternative Brexit blueprint as well as calls for a second referendum and/or an early general election. The rebound in the UK manufacturing PMI in September to a better-than-expected 53.8 from an upwardly revised 53.0 in August, based on data out today, will have been a welcome relief but can do little to paper over these serious political cracks
Swiss Franc
The Swiss Franc was within touching distance of a 14-month high on 23rd September but then weakened about 1.7% in the following seven sessions as stronger global risk appetite saw investors rotate money out of safe-havens and into riskier assets, including emerging market currencies. The currency slightly weakened further in today’s trading session, with an in-line-with-expectations rebound in retail sales of 0.4% mom in August seemingly failing to excite market participants.
Australia and Kiwi Dollars
Both weakened about 0.4% in trade-weighted terms last week, despite decent Australian macro data.
