The last 5-6 trading sessions saw major currencies, including the Dollar, Euro, Sterling and
Antipodean currencies, largely range-bound with few major data releases for markets to focus on. Equity volatility and lower US and global equities, led by US tech stocks, took centre stage. China’s leadership retaliated to the US government’s tariffs on Chinese imports with tariffs on $3bn worth of US imports, fuelling concerns that the world’s major trading powers are heading towards globalised protectionist policies.
US Dollar
The Dollar remained in a particularly narrow range despite the release of upwardly revised US GDP data for Q4 2017. The third and final estimate put growth in the last quarter at 2.9% quarter-on- quarter annualised, up from 2.5% in the second estimate and beating the consensus forecast of 2.7%. Economic growth remains robust in the US and the headline and core measures of PCE inflation rose slightly in February to 1.8% year-on- year and 1.6% year-on- year, respectively. But with concerns growing that reciprocal import tariffs may harm US and global growth, markets are still seemingly convinced that the US Federal Reserve will hike interest rates only twice more this year. They are pricing an 80% probability of the Fed hiking rates 25bp at its June policy meeting.
Euro
The Euro weakened slightly to the bottom of a narrow trading range. Signs that the pace of economic activity in the Eurozone was unchanged in March (based on Purchasing Managers Indices) and that German business confidence and consumer demand have come off the boil are somewhat taking the shine off the Eurozone’s still encouraging economic picture. The Euro may struggle to make significant gains until Eurozone inflation starts to tick higher and the European Central Bank can convincingly start talking up the need for higher policy rates at some point in 2019.
Sterling
Sterling finds itself broadly in the middle of a narrow 12 session range about 1% wide. Q4 GDP growth was unchanged at 0.4% quarter-on- quarter, leaving the UK as of the slowest growing developed economies. The main focus seems to be on ongoing Brexit negotiations although there were few new developments for markets to sink their teeth in. On the policy front the next big question is whether the Bank of England will hike interest rates 25bp at its May policy meeting. The market thinks so despite signs that the economy and underlying inflation remain soft. Preliminary data point to weak retail sales over a wet Easter Bank holiday.
Antipodeans
The Australian Dollar edged slightly weaker last week despite decent macro data, with ongoing concerns about the impact slower Chinese trade and growth would have on the open Australian economy. The Reserve Bank of Australia left its policy rate unchanged at 1.50%, as widely expected, and the accompanying statement struck a largely neutral tone.
