Dollar
The Dollar trade-weighted index shed 0.5% last week. In the face of soft US macro data FOMC members reiterated their now well known stance that they remain patient, flexible, data dependent and that ultimately the Federal Reserve is in a wait-and-see mode. The Philadelphia Fed manufacturing index slumped from 17.0 in January to -4.1 in February – the first negative print since July 2016 – and existing home sales edged down to 4.94mn – their lowest level since November 2015. While headline durable goods orders – a measure of domestic US investment – rose 1.2% mom in December, the core index inched up only 0.1% mom.
President Trump confirmed over the weekend that the US would delay a hike in US tariffs on Chinese imports which had been pencilled for 1st March, citing progress in ongoing trade negotiations between the US and China. But while the Chinese Renminbi is now trading at its strongest level since July 2018 the Dollar has weakened a further 0.2% since Friday.
Euro
The Euro was broadly unchanged last week with slightly more positive Eurozone macro data competing against a more cautious European Central Bank and the threat of the US imposing tariffs on European car exports. The Eurozone composite PMI edged up to a 3-month high of 51.4 in February (with the improvement particularly notable in France) but the minutes of the ECB’s January policy meeting painted a more economic gloomy picture than previous minutes. The net result is that EUR/USD is still trading around 1.135 – broadly where it was a month ago.
Sterling
In a world of reasonably low G10 currency volatility, Sterling’s 1.5% gain last week was notable even if the Sterling trade weighted index ultimately remains in a reasonably narrow range. Politics continue to dominate the headlines but UK macro data still matter at the margin to the extent that they continue to influence markets’ perception of what the Bank of England will do next. With the Brexit deadline looming fast – the UK is due to exit the EU in just over a month – tensions within the main political parties are becoming increasingly obvious. Nine members of the opposition Labour Party formally left the party last week to form the Independent Group and they were joined by three MPs from the ruling Conservative Party.
Perhaps more positively, UK labour market data were reasonably solid – even if real wage growth remains modest – and markets are pricing about 13bp of rate hikes over the next 12 months, more than for any of the other G10 central banks.
Australian and New Zealand Dollars
Trading in the Australian Dollar remains a little erratic with the currency to some extent at the mercy of developments in China. The AUD/USD spiked higher above 0.72 in early trading on Thursday following the release of another strong set of labour market data (+ 65,400 full-time jobs created in January) but tanked a full big-figure to 0.71 a few hours later after customs officials at China’s northern Dalian port confirmed that they had banned imports of coal from Australia. AUD/USD has jumped back to 0.716 on over-the-weekend news that US will delay its imposition of higher tariffs on Chinese imports. The Kiwi Dollar has largely tracked its antipodean cousin.
