The theme last week was one of “risk-off”, with the Dollar and Swiss Franc both appreciating about 0.5% in trade-weighted terms and yet the more risk-sensitive Australian Dollar held its own against the Dollar. The Kiwi Dollar, however, was down 0.6% following a dovish RBNZ policy meeting while the volatile Sterling lost 0.8% in the face of a seemingly never-ending Brexit saga. The Euro edged slightly lower to its weakest level since July 2017.
Dollar
Despite the US yield curve inverting – historically a good bellwether for an impending US recession – the Dollar managed to push slightly higher last week, in part because other major central banks, including the ECB and RBNZ, have turned even more dovish than the Federal Reserve. However, the Dollar is on the back foot in today’s trading session following the release of stronger-than-expected Chinese PMI data and a bounce in global risk appetite.
Swiss Franc
The safe-haven Swiss Franc benefited last week from the weakness in emerging market currencies as well as a strong rebound in the Swiss KOF leading indicator. The index, which has historically correlated closely with domestic GDP growth, jumped from 93.0 in February to a four-month high of 97.4 in March, suggesting that economic activity may have started to slowly started to pick up. USD/CHF fell further today to 0.994 despite weaker than expected Swiss retail sales (-0.2% yoy in February) and a sharp fall in the PMI in March to 50.3 – its weakest point since August 2016.
Sterling
There were few macro data releases last week – GDP growth was confirmed at 0.2% qoq in Q4 – and in any case they have all but become irrelevant in the context of Brexit and still chronic uncertainty.
Parliament last week voted on a number of alternative scenarios to Prime Minister May’s draft Brexit deal but none received a majority. Moreover, it voted down a stripped-down version of the deal on the table, with a majority of 58 MPs voting against the Withdrawal Agreement. With time running out before the UK is due to leave the EU on the new date of 12th April, markets once again were seemingly pricing in a higher risk of the UK leaving the EU without a deal and GBP/USD which at one point had traded close to 1.33 was back down to 1.30 on Friday.
Kiwi Dollar
The Kiwi trade weighted index had appreciated to a three month high on 26th March but then dropped over 1% the following day after the Reserve Bank of New Zealand said at its policy meeting that its next move was more likely to be a rate cut than a hike. While most major central banks have turned more dovish in recent weeks in the face of slowing economic growth, the RBNZ is the first G10 central bank to explicitly state that it may have to cut its policy rate.
