The Euro, Sterling and Swiss Franc were broadly unchanged versus the Dollar last week but have made very small gains in the past 48 hours. Global risk appetite has ticked higher following news over the weekend that US President Trump had agreed with Chinese leader Xi Xiping (in the context of the G20 meetings) to delay by 90 days the planned increase in US tariffs to 25% from 10% on $200bn of Chinese imports. This has seen the Australian and Kiwi Dollars extend their gains to near 10-11 month highs and Asian equities posted solid gains in today’s session.
Dollar
The Dollar lacked any clear direction last week, buffeted by mixed US macro data and confirmation that Federal Reserve Chairperson Powell is less hawkish than back in October. While personal income growth rose 0.5% mom in October, the core PCE-inflation measure slowed to only 1.8% yoy while the significant goods trade deficit widened to $77.3bn and both new and pending house sales contracted. However, the Dollar has weakened 0.8% in the past 48 hours on the back of higher global risk appetite following the announcement by US President Trump and Chinese leader Xi Xiping on trade and tariffs.
Euro
Similarly, the Euro remained range-bound last week and has done little in the past 48 hours. Slow Eurozone GDP growth and modest CPI-inflation as well as the Italian fiscal situation are keeping market expectations of ECB rate hikes and the Euro in check. While the Eurozone manufacturing PMI for November was revised upwards slightly to 51.8 (from 51.5), core and headline CPI-inflation slowed to 1.0% yoy and 2% yoy, respectively, in November according to preliminary data, taking the wind of claims by some EC board members that inflationary pressures were inching higher. However, with the Dollar more volatile (and vulnerable) at these levels there is still seemingly long-Euro, diversification interest from central banks and sovereign wealth funds.
Sterling
Sterling has continued to slowly grind weaker in the past 7-8 sessions, beating to the drum of Brexit and market concerns that if the British parliament votes down the Brexit deal on 11th December the UK could conceivably exit the EU without a deal. Scenario-analysis studies published by the Bank of England last week suggest that in this scenario the UK economy (and budget) would suffer a significant hit.
Australian and Kiwi Dollars
The Aussie and Kiwi Dollars had weakened over 1% in the previous week and remained choppy early last week. But they appreciated over the weekend following the Trump- Xiping meeting. The Kiwi Dollar softened a little today but it still only 0.2% away from a 10-month high in trade-weighted terms. Similarly the Aussie Dollar is down 0.3% today but less than 0.3% from a 9-month high.
Swiss Franc
The Swiss Franc is a the bottom of a reasonably narrow range in place since mid-November following the release last week of data which revealed that the Swiss economy had contracted 0.2% qoq in Q3 and GDP growth slowed to 2.4% yoy. Swiss growth in recent quarters has been amongst the fastest in the developing world but it has clearly run out of steam, in line with other European economies.
