Dollar
Markets finally had access to tier-one US macro data last week, although as a result of the government shutdown and the unavailability of underlying data a number of agencies are still playing catch up. A new release date for Q4 GDP figures has yet to be announced.
The Dollar weakened again about 0.6% despite robust ADP and official labour market data for January, a solid rebound in the ISM manufacturing PMI in January to 56.6 and a surprisingly strong 17% mom jump in new home sales in November.
The Federal Reserve’s neutral tone at its policy meeting on Thursday was broadly in line with expectations. However, it was sufficiently cautious to anchor markets’ expectations that US macro data will keep the Fed on hold for the remainder of the year and to push the Dollar trade-weighted index to its weakest level since early August. The lack of tangible progress in trade negotiations in Washington between the US and Chinese delegations also seemed to weigh on the Dollar.
Euro
The Euro appreciated a respectable 1% last week, outperforming of all the currencies of the Eurozone’s main trading partners. This rebound flew in the face of still weak Eurozone macro data. GDP growth was unchanged at 0.2% qoq in Q4, implying that growth was a paltry 0.4% in H2 2018, with Italy – the third largest Eurozone economy – in technical recession. Unsurprisingly perhaps, measures of Eurozone CPI-inflation were broadly unchanged and still pretty soft which is again raising question marks about the ECB’s monetary policy stance.
Sterling
Sterling’s January rally – spurred by expectations that a “no-deal” Brexit was increasingly unlikely – was arrested last week, with the trade-weighted index shedding 0.5%. The House of Commons last Monday voted in favour of two amendments – one which would effectively take a Hard Brexit off the table and one which gives Prime Minister Theresa May the mandate to restart negotiations with the EU over the Withdrawal Agreement and in particular the controversial “backstop”.
These parliamentary votes were not legally binding and Prime Minister May has stuck to her previous position of going back to Brussels to seek a better Brexit deal while keeping open the possibility of the UK leaving the EU without a deal. At the same time EU negotiators have so far shown very little if any appetite to re-open negotiations or delay the UK’s exit from the EU beyond 29th March 2019. This has seemingly unnerved markets and larger-than-expected falls in the UK manufacturing and construction PMIs in January added to the pressure on Sterling
Swiss Franc
The Swiss Franc shed over 1% last week in trade-weighted terms to close to a 4-month low. Weak Swiss macro data – including a 0.3% yoy fall in retail sales in December, a collapse in the trade surplus and downturn in the KOF leading indicator in January – along with meagre economic growth in Switzerland’s main trading partner (the Eurozone) and the ongoing recovery in US and global equities all conspired against the Swiss Franc.
