The main news in financial markets last week was the rise in global government bond yields, fuelled by market expectations of higher inflation, and the rout in global equity markets on Thursday. The S&P 500 ended the week down about 2.4%.
The safe-haven Dollar benefited, gaining just over 1% in trade-weighted terms and on Friday hitting its strongest level since 12th November. On the data front the rate of growth in US durable goods, a proxy for domestic investment, had slowed every month in Q4 to only 1.2% mom in December but surged 3.4% mom in January. Moreover, the Conference Board consumer confidence index ticked up again in February. These data arguably provide further evidence that US economic growth picked up early in 2021 albeit from a low base, with GDP growth in Q4 only revised up marginally to 4.1% qoq annualised.
The Euro put in a decent performance. On 25th February it hit its strongest level in six weeks before giving up a bit of ground on Friday to end the week up about 0.6%. The GBP/EUR cross, which on 24th February had threatened to breach the 1.17 level, has eased back to 1.157 at time of writing. For Sterling it was a week of two halves. Its rally further extended early in the week after Prime Minister Johnson announced on 22th February the government’s multi-month road-map for a loosening of domestic lockdown restrictions. The more risk-sensitive Sterling sold off in the second half of the week, hampered by the slump in global risk appetite, to end the week broadly flat in trade-weighted terms.
The Australian and Kiwi Dollars had somewhat contrasting fortunes, with the former down 1.6% and the latter broadly unchanged albeit in a wide range. While the Australian Dollar was seemingly hit by the dip in global sentiment and commodity prices the Kiwi Dollar is still by all accounts being supported by the strength of a domestic economy which unlike many of its peers is open for business. Strong New Zealand external trade data for January, released on Thursday, may have also given the currency a bit of a leg-up. The far from bullish RBNZ policy meeting statement earlier in the week did not seemingly have a lasting or materially negative impact on the Kiwi Dollar.
Finally, and perhaps surprisingly the safe-haven Swiss Franc depreciated about 0.8% last week despite having made a partial recovery on 25-26 February. It has again weakened slightly in the past 48 hours.
