The Dollar trade-weighted index, which had been in a remarkably narrow 0.2% range for 12 consecutive sessions up until last Thursday, came to life on Friday and appreciated 0.3% following the release of stronger-than-expected US labour market data. The US non-farm sector created 224,000 in jobs, three times as many as in May. Markets subsequently faded their pricing of Fed rate cuts for the remainder of the year to 65bp from a peak of 78bp and the S&P 500, which had hit three consecutive record highs earlier in the week, closed 0.2% down.
The Euro and Sterling each weakened about 0.5% last week. Sterling was dragged lower early in the week by the release of lacklustre PMI data for June pointing to zero or even negative quarter-on-quarter GDP growth in Q2 and an increasingly more dovish (or at least less hawkish Bank of England). The Sterling trade-weighted index has been broadly stable in the past four trading sessions but lingers at a 7-month low.
Euro weakness is seemingly being driven by market expectations that the ECB will loosen monetary policy in the face of low Eurozone inflation, particularly if the European Parliament confirms that Christine Lagarde will replace ECB President Draghi at end of October. Lagarde, the current head of the IMF, has a bearish outlook for global growth and a penchant for reflationary monetary policies.
The Swiss Franc depreciated about 0.6% last week. The pick-up in global risk appetite following the meeting between US President Trump and Chinese President Jinping on 29 June, at which both sides agreed to delay the introduction of further import tariffs, is weighing on the safe-haven Swiss Franc.
The Australian Dollar was broadly stable before and after the RBA policy meeting at which the Australian central bank cut its policy rate 25bp, broadly in line with expectations. Markets are pricing in one further 25bp rate cut before end-year but the RBA currently appears to be in a wait-and-see mode. The volatile Kiwi Dollar, which the previous week had surged 1.7%, lost 0.7% last week.
