The Dollar trade weighted index, which had been stuck in a narrow 0.3% range for two weeks, appreciated 0.5% last week, with the bulk of the gain coming early in the week after US President Trump made some positive noises about US-China trade negotiations. The past 18 months however suggest that markets will want to see tangible evidence of progress before getting too carried away.
Sterling had another roller-coaster week, with Brexit and domestic politics again the main driver. The currency got within 0.2% of a 3-month high on Tuesday following the British Supreme Court’s ruling that Prime Minister Johnson had acted unlawfully in asking the Queen to suspend parliament until 14th October. Members of parliament returned to the chamber on Wednesday but the acrimonious backdrop in a very divided House of Commons has once again re-focussed markets on the possibility of Boris Johnson trying to circumvent a recently-passed law and taking the UK out of the EU without a deal on 31st October. In trade-weighted terms Sterling has dropped 1% since last Tuesday and remains one of the most volatile major currencies.
The Euro remains largely directionless. The Eurozone currency weakened early in the week following the release of very weak Eurozone composite PMI data and news that German ECB Board member Sabine Lautenschläger had resigned in protest at the ECB’s recent loosening of monetary policies. The composite PMI, a leading indicator of economic activity in the Eurozone, fell to a 6-year low of 50.4 in September from 51.9 in August, pointing to very weak GDP growth in Q3. The Euro did rally back in the second half of the week, ending the week down only 0.2% and still within the 2.3%-wide range in place since early January.
The Swiss Franc, which had appreciated 0.5% in the wake of the SNB policy meeting on 19th October, gained a further 0.5% last week. The SNB’s decision not to cut its policy rate (unlike the ECB) has further enhanced the appeal of the safe-haven currency at a time when global risk appetite remains a tad jittery. The Swiss Franc has so far shown little reaction to the release this morning of a large drop in the KOF leading indicator to a six-month low of 93.0 in September.
The Kiwi Dollar was the outperformer last week, gaining 1% in trade-weighted terms, after having depreciated for four consecutive weeks. It made small gains early in the week and rallied further after the RBNZ left its policy rate unchanged at 1.00% on 24th September. While this was in line with analysts’ consensus forecast, there was some market nervousness given the central bank’s greater-than-expected 50bp rate cut at its previous meeting.
