Global equities remained choppy last week with a downward bias. The under-pressure Euro and robust Dollar and Swiss Franc all appreciated about 0.2-0.3% last week. However, other European currencies – including Sterling – lost ground, as did the Australian Dollar in and in particular the Kiwi Dollar.
US Dollar
The Dollar finally broke through a range in place since mid-August, with decent gains early in the week driven by ongoing jitters in global equity markets and the paucity of competitors for the Dollar at present. The Dollar faded late in the week, with the slowdown in US GDP growth in Q3 to 3.5% qoq annualised from 4.2% in Q2 reminding markets that while the US economy is still booming there may be greater challenges ahead. Indeed, while markets are still pricing in a 75% probability of the Fed hiking rates 25bp at its December meeting, they have cut back their expectations for 2019 to 43bp of hikes (versus 58bp only a few weeks ago).
Euro
The Euro, which had weakened to a two-month low a week ago, found its footing last week despite German and Eurozone data pointing to a possible slowdown in economic growth in early Q4 from already modest levels. The ECB policy meeting provided few surprises. The ECB, which started to taper its QE program in early October (as planned), stuck to its expectation that it would next hike rates after summer 2019. ECB President Draghi was if anything marginally upbeat given risks to European and global growth and still subdued Eurozone inflation. This seemingly gave the Euro some breathing space, at least for now. Brexit and the Italian budget for 2019 are issues likely to test the Euro’s mettle in coming weeks.
Sterling
There was no such relief for Sterling which weakened 1.5% to a one-month low. Brexit is still centre-stage and while Prime Minister May seems to have secured her job for now, markets are less confident that she can secure a Brexit deal with the EU in coming weeks, let alone get it approved by parliament. The threat of the UK leaving the EU without a deal still looms, despite growing political and popular support for a second referendum. The next four weeks will arguably be critical.
Swiss Franc
The Swiss Franc slowly appreciated last week near the top end of a 3-week range, with jitters in global markets driving support for the safe-haven currency.
Australian and Kiwi Dollars
The Australian Dollar weakened a tad but ultimately lacks any clear direction at these levels, which may be partly due to a neutral and non-committal Reserve Bank of Australia. The Australian economy, including the labour market, is doing reasonably well but wage and consumer price inflation remains modest while the housing market is potentially vulnerable. Markets are not expecting any RBA hikes before 2020 and this is keeping the Australian Dollar on a short leash.
The Kiwi Dollar, which had outperformed two weeks ago by appreciating 1.3%, gave up half of these gains last week. There were no obvious catalysts beyond a currency market which may have got ahead of itself and wanting to take profit.
