The collapse of talks between US President Trump and North Korean leader Kim Jong-Un had little impact on the Dollar but the South Korean won did weaken about 0.7% following the announcement that both leaders had walked away from negotiations due to President Trump’s unwillingness to remove sanctions against North Korea. Other Asia-Pacific currencies also weakened in the process, with the Australian and Kiwi Dollars down for the second consecutive session.
The Dollar, which has been on a downward trend for the past three weeks, inched slightly stronger today following the (delayed) release of the first estimate of US GDP in Q4. Growth of 2.6% qoq annualised was broadly in line with expectations and down from 3.4% in Q3 but Dollar bears had perhaps expected a weaker figure. Moreover, while US economic growth is moderating, it remains considerably faster than in other major economies, including the Eurozone (0.2% qoq in Q4), the UK (0.2%) and Japan (0%).
The fall in AUD/USD to 0.71 was particularly notable as earlier in today’s trading session it had rallied to 0.715 following the release of stronger-than-expected CAPEX numbers for Q4. Private new capital expenditure rose 2% qoq, twice as fast as expected and a strong rebound following a 0.5% qoq contraction in Q3. This bodes reasonably well for headline Australian growth, with Q4 GDP data due for release on 6th March.
With global risk appetite on the back foot it was perhaps unsurprising that the safe-haven Swiss Franc managed to appreciate 0.3%. This modest gain would likely have been more impressive but for the release of meek Swiss GDP data for Q4 and downwardly revised Q3 numbers. GDP growth did turn positive in Q4 to the tune of 0.2% qoq and as a result the Swiss economy avoided a recession, but this rebound was from a low base with Q3 growth revised down to -0.3% qoq. The small and open Swiss economy is clearly feeling the headwinds from slower European growth.
While the GBP/USD cross has been stable at around 1.33 since yesterday morning, Sterling’s outperformance versus other major currencies has resulted in the Sterling trade-weighted index pushing to its highest level since mid-April. Price action may be a little more muted over the next fortnight, with markets likely to re-focus their attention on critical parliamentary votes on Brexit on 12th March, and potentially 13th and 14th March.
