The Dollar was again up 0.3% last week and has risen a further 0.4% in the past 48 hours but is ultimately unchanged in the past month despite the significant rise in US yields. The star performer was Sterling which appreciated 1.4% although it has given back 0.2% in the past two trading sessions. The Swiss Franc weakened a further 0.4% last week to a near two-month low but has bounced back 0.3% since Friday. The biggest underperformers among developed currencies were the Australian and Kiwi Dollar which both weakened 2.5% versus the US Dollar last week.
US Dollar
The Dollar edged higher for the second consecutive week but its gains have been modest considering the vertiginous rise in US government bond yields. US macro data continue to point to strong Q3 GDP growth but wage growth disappointed in September and both headline and core CPI-inflation fell in year-on-year terms in August. FOMC members, while generally bullish about the US economy’s near-term prospects, seem a little more divided about the implications for policy rates medium-term and the Dollar is ultimately unchanged from a month ago.
Euro
The Euro has traded in a narrow range in the past seven trading sessions following a rapid decline in the previous eight. Market concerns about the Italian budget deficit appear to have receded for now but with Eurozone economic growth and inflation modest by all accounts there is seemingly little appetite at this juncture to push the common currency stronger.
Sterling
Sterling had slowly recovered in late September and appreciated a further 1.4% last week – making it by far the best performing developed market currency. Markets are reacting to tentative signs that both the UK and EU are seemingly willing to meet half-way in order to reach a post-Brexit deal and Prime Minister May’s strong performance at her ruling Conservative Party’s conference. The British government is more openly discussing the possibility of a Canada-style deal while EU negotiators have suggested that a solution could be found to the Irish border. A lot of work still needs to be done and both sides may struggle to reach a deal (even in principle) by the 17th October European Council meeting but it is conceivable some kind of agreement could be hit by the mid-November hard deadline.
Swiss Franc
The Swiss Franc weakened a further 0.4% last week to a near two-month low, as stronger global risk appetite sees investors continue to rotate money out of safe-havens and into riskier assets, including emerging market currencies.
Australia and Kiwi Dollars
Both weakened nearly 2% in trade-weighted terms last week with the Australian Dollar down to its lowest point since February 2016 and the Kiwi Dollar hitting a low not seen since early October 2015. With neither the RBA nor RBNZ even contemplating a rate hike any time soon and the Chinese economy seemingly losing momentum, the Australian and Kiwi Dollars are losing out to other developed currencies backed by more hawkish central banks and strong trade with fast-growing partners.
