The Euro, Sterling and Swiss Franc were broadly unchanged versus the Dollar last week. With few tier-one macro datapoints to focus on markets turned their attention to central bank policy-makers in the US and to Brexit in the UK. The Australian and Kiwi Dollars gave back most of the gains they had made the previous week
Dollar
While the Dollar was broadly unchanged versus the Euro, Sterling and Swiss Franc last week, it appreciated against a number of other major currencies (including the AUD and NZD) and thus managed to strengthen 0.5% in trade weighted terms. The Dollar remains on a steady if modest and volatile uptrend punctuated by regular sell-offs. Point in hand is the fact that the Dollar weakened 0.2% over the weekend. Key Federal Reserve members have been more balanced in their outlook recently and this has caused a degree of Dollar choppiness.
Euro
The Euro managed to pick itself off the floor last week, eking out a 0.3% gain despite lingering concerns that the European Union will eventually impose financial penalties on the Italian government for its non-compliance of EU fiscal rules. The German IFO Business Climate index dipped further in November, the third consecutive monthly contraction. Based on historical correlations this suggests that German GDP growth, which contracted 0.2% qoq in Q3, did not recover much in early Q4.
Sterling
Sterling continues to beat to the drum of Brexit and was only down 0.2% last week in trade-weighted terms. The British government and EU mid-week agreed to a draft outline of the UK’s future relation with the EU and this was formalised yesterday at a special EU Summit of leaders. But the key question remains whether the British Parliament will approve the draft Withdrawal Agreement and draft outline of future relations in a vote now pencilled to take place between the 10th and 12th of December (before the next European Council meeting on 13th December). The answer is likely to set the tempo for Sterling and UK rates, the economy and political landscape for the next few months.
Australian and Kiwi Dollars
Both the Aussie and Kiwi Dollars weakened over 1% last week, reversing the previous week’s gains. Disappointing macro data, including weaker-than-expected Q3 retail sales in New Zealand, and these economies’ central banks’ reluctance to even contemplate rate hikes any time soon are making it hard for their currencies to string together steady gains.
