Dollar
The Dollar had a bit of a wobble following Tuesday’s mid-term elections but swiftly recovered to end the week 0.6% stronger. The Federal Reserve, at its policy meeting on Thursday, all but guaranteed that it would hike rates 25bp at its December meeting (as priced in by markets) and the Dollar, which has gained a further 0.3% in the past two trading sessions, is back to its highest point since March 2017.
It nevertheless remains to be seen whether the Fed will be willing and able to keep up a sustained pace of rate hikes in 2019. US data out this week could provide the first indications of how GDP growth and inflation fared in early Q4 and may at the margin colour scheduled speeches by a number of FOMC members, including Fed Chairperson Powell.
Euro
The Euro was broadly stable in a narrow range last week but has since Friday dropped 0.4%. Eurozone GDP growth in Q3 (0.15% qoq) was a third of the rate recorded in Q2 and this has poured cold water on any hope that the ECB could somehow turn more hawkish near-term.
Sterling
Sterling managed to appreciate about 0.6% in trade weighted terms last week but has given up all of these gains in the past 48 hours with markets seemingly concerned that, with time running out, the British government and EU negotiators are not any nearer in finding mutually acceptable solutions to outstanding Brexit-related issues. Specifically, the Irish border issue and associated question of how long the constituent parts of the United Kingdom should remain in a customs union and under what circumstances, has seemingly hit an impasse. The solutions which both sides have put forward have proved unacceptable to one another and Prime Minister May is under increasing pressure from within her own cabinet to somehow square the circle.
Politicians from both the Remain and Leave camps seem increasingly less confident that the UK and EU will be able to agree, on time, on the terms and conditions of the UK’s withdrawal agreement, let alone of the UK’s new deal with the EU. Mid-November was meant to be the hard deadline for both sides to reach agreement but this deadline will in all likelihood be missed. If that is the case, the UK and EU could agree to continue negotiating for a few more weeks but come December if a deal cannot be presented to the UK and European parliaments some very difficult choices will have to be made.
Swiss Franc
The Swiss Franc has appreciated since 2nd November but ultimately remains broadly in the middle of a range in place since late-September. The Swiss currency continues to benefit from occasional wobbles in global risk appetite and signs that the Swiss economy is in better shape than in early 2018. But with global financial markets reasonably well behaved and the Swiss National Bank in no rush to even contemplate hiking rates, the Swiss Franc may struggle to break out of this range near-term.
Australian and Kiwi Dollars
The Kiwi Dollar was the star performer last week, appreciating 1.4%. It is now up 3.4% in the past month with better domestic macro data fading the risk that the Reserve Bank of New Zealand may be forced to go against the global trend and cut its policy rate.
The Australian Dollar made decent gains mid-week but the currency ran out of steam following the Reserve Bank of Australia’s policy meeting. The RBA continues to paint a somewhat mixed picture of the Australian economy, with modest wage growth and a shaky housing markets two issues which are seemingly stopping the RBA from turning more hawkish.
