Price action in currency markets was somewhat subdued last week. The Dollar was marginally weaker, with a mixed performance against major and emerging market currencies, and there are signs that its three-month rally has run out steam.
European currencies, bar the Swiss Franc, were generally a little weaker last week. The Euro again lost some ground and in trade-weighted terms is now at the bottom of a narrow two-month range. Similarly, Sterling weakened 0.5% and is a now at the bottom of a one-month range about 1%-wide.
The Swiss Franc bucked the European trend and extended its gains for a fourth consecutive week. Similarly the Australian Dollar made small gains while the Kiwi Dollar was broadly stable.
US Dollar
The US Dollar trade-weighted-index (TWI) last week depreciated about 0.3% and has weakened further in the past 24 hours. While it has appreciated against most European currencies, it has lost ground with the so-called safe-haven currencies (the Swiss Franc and Japanese Yen) and a number of emerging market currencies. The catalyst for the Dollar’s slight loss of form appears to have been the release of the Federal Reserve’s May meeting minutes which arguably poured cold water on the idea that the Fed may still hike three more times this year. Uncertainty as to whether US President Trump will meet with North Korean leader Kim Jong un on 12th June may also have taken the wind out of the Dollar’s sails for now.
Sterling
Sterling seemingly took little comfort from the rebound in retail sales in April, with the ongoing fall in CPI-inflation eroding market expectations that the Bank of England will hike rates at its August meeting and in turn support for Sterling. Brexit-related developments are likely to be increasingly influential going forward with markets likely to focus in particular on the government’s pending decision on whether the UK will remain in some kind of customs union with the European Union.
Euro
The Euro seems to be suffering from a death by a thousand cuts and the TWI is now trading at a 2-month low. Growing evidence of cooling Eurozone growth, uncertainty as to who will govern and for how long in Italy – the Eurozone’s third largest economy – a cautious European Central Bank and the threat of US protectionist policies have all weighed on the Euro in recent months and investors seem reluctant at this stage to rebuild long-Euro positions.
Swiss Franc
The Swiss Franc was the only major European currency to appreciate last week and while it has given back some of its gains in the past 24 hours it remains near the top of a range in place since mid-March. The Swiss Franc (along with the Japanese Yen) appears to be benefitting from shaky global risk appetite, signs that Swiss economic growth is on a surer footing (thanks in part to the lagged impact of a more competitive Swiss Franc) and arguably attractive valuations.
