FX markets had a choppy weak with no clear unifying theme beyond the reasonably broad-based recovery in the US Dollar. In the emerging markets space the high-yielding Mexican Peso fell sharply but the Turkish Lira and Russian rouble both staged recoveries. Sterling finally gave way to weak UK macro data but the Euro and Swiss Franc managed to hold their ground second half of the week.
US Dollar
The Dollar started the week at a 2-month low against it’s main trading partners but made a swift recovery in the second half to end the week up 1.1% thanks in part to US interest rate hitting cycle-highs. The Dollar made gains across the board, and in particular against Mexican Peso, Sterling, Kiwi Dollar and Swiss Franc which all sold off hard. The Dollar’s gains would have been even greater had it not be for a recovery in some of the high-yielding currencies, including the Russian Rouble and Turkish Lira.
Sterling
The UK rates market’s willingness to price in a 25bp rate hike at the 10th May policy meeting and the FX market’s willingness to look through disappointing UK macro data were severely tested last week. The combination of soft UK wages, inflation and retail sales data and a less hawkish speech by Bank of England Governor Carney saw the rates’ market pricing of the probability of a May hike drop to 44% from 78% only a week ago. Sterling unsurprisingly followed suit and depreciated about 1.6% – its largest weekly fall since early October.
Euro
The Euro was only down marginally last week despite clear evidence that Eurozone, and in particular German business sector confidence has quickly come off the boil and that Eurozone inflation is going nowhere fast. The Eurozone’s economy remains reasonably buoyant but the shine has come off and markets seemed unwilling to push the Euro stronger, with one-eye undoubtedly on this week’s European Central Bank policy meeting.
Antipodeans
Both the Australian and Kiwi Dollars sold off mid-week before stabilising. The Australian Dollar was not helped by the weak Westpac leading indicator for March, disappointing details behind the March labour data and downward revisions to the February numbers.
Swiss Franc
The Swiss Franc has been on a downturn since early February and weakened further on Tuesday before spending the rest of the week largely unchanged. It is conceivable that the Swiss National Bank may want to start fading the pace of Swiss Franc depreciation even if it falls short of drawing a hard line in the sand at this stage.
