Global risk appetite came off the boil last week, with the S&P 500 stalling, US government bond yields and the price of crude oil falling on global growth concerns and the gold price rallying. The spread of the coronavirus in China was the main headline and Chinese and to a lesser extent other Asian financial markets have come under pressure.
The Dollar, which had been remarkably stable for weeks, posted small gains late in the week to end up by about 0.5% in trade-weighted terms. It appreciated a tad further over the weekend and in Asian trading today.
Sterling was choppy but ended the week up about 1%. It rallied strongly following the release of strong labour market data for December and a buoyant CBI business confidence survey and markets unwound some of the Bank of England rate cuts they had priced in. Sterling, which on Thursday hit a 3-week high, then sold off following the release Friday morning of strong flash PMI data for January – a case of a market long Sterling taking profit ahead of this week’s still uncertain Bank of MPC meeting.
The Euro appreciated slightly in the run-up to Thursday’s ECB policy meeting with markets hopeful that President Lagarde would somehow sound more hawkish. But the ECB made no material announcements, beyond confirming a year-long review of Eurozone monetary policy and the Euro subsequently sold off. The Euro weakened further on Friday following the release of disappointing Eurozone PMI data for January to end the week down 0.2% in trade-weighted terms at its weakest level since July 2017.
The Australian and Kiwi Dollar had contrasting fortunes, respectively weakening and appreciating by about 0.3% last week. The volatile Kiwi Dollar was buoyed by stronger than expected CPI-inflation data for Q4 (+1.9% yoy) but has in the past 48 hours given back the gains it made last week on concerns about the coronavirus’ potential impact on New Zealand’s economy.
