The Dollar trade-weighted index was up only 0.2% last week, stuck in the past month in an incredibly tight range only 0.8% despite the gyrations in market pricing of Federal Reserve rate cuts. Markets are currently pricing 29.5bp of cuts at the Federal Reserve’s 31st July policy meeting following a Wall Street Journal article on Friday which hinted at leak that the Fed would only cut rates 25bp and not 50bp. Pricing for a rate cut had shot up to 37bp at one point on Thursday night following dovish comments by FOMC member Williams.
The Euro weakened 0.3% to its lowest level since 7th May, with markets focussing on the possibility that soft Eurozone economic growth and inflation could prompt the ECB to turn even more dovish at its policy meeting this week.
Similarly, Sterling shed 0.3% last week, at one point on Wednesday weakening to its lowest level in nearly two years, despite the release of decent labour market and retail sales data for respectively May and June. The main catalyst of Sterling weakness has been growing concerns that Boris Johnson, who will likely be confirmed as the new prime minister tomorrow, will take the UK out of the EU, with or without a deal.
Weakness in the currencies of Switzerland’s main trading partners helped propel the Swiss Franc 0.5% to a two-year high, which may start to concern a dovish Swiss National Bank.
The Australian Dollar briefly hit a 3-month high on Thursday, buoyed by decent employment data for June, but has since weakened 0.3%. But once again the Kiwi Dollar was the star performer, surging 1.1% last week to its strongest level in trade-weighted terms since 1st April. Markets have in recent weeks become less convinced that the RBNZ will cut its policy rate again at its August meeting.
