The main theme last week was one of weak macro data in developed economies, including the US, UK, Eurozone, Australia and New Zealand. Global economic growth continues to slow and perhaps unsurprisingly central banks are sounding increasingly more dovish, or at least less hawkish. This has contributed to modest pressure on currencies such as the Australian Dollar.
Dollar
US macro data were at best mixed last week and FOMC members continued to stress that the Fed is in a wait-and-see pattern. However, in relative terms the US economy has held up better than other developed market economies and the Dollar, which had been under pressure, appreciated 0.6% last week in trade-weighted terms. The Dollar TWI is now at a 2-week high but there is much event risk in coming weeks, including the threat of another government shutdown, the US imposing higher tariffs on Chinese imports and the release of Q4 GDP data.
Euro
Price action in the Euro remains relatively muted but the Eurozone’s common currency did shed 0.3% in trade-weighted terms last week. Eurozone growth and inflation remain tepid and ECB President Draghi is sounding increasingly less confident about the near-term outlook for the Eurozone.
Sterling
Sterling hit a multi-week high in late-January on market expectations that a “no-deal” Brexit was increasingly unlikely and that Prime Minister may be able to cobble support for a new deal. But since then Sterling has weakened 1.5% as it becomes clear that the House of Commons remains extremely divided on the issue of Brexit. Weak UK data, including January PMIs and Q4 GDP, have not helped. GDP growth collapsed to just 0.2% qoq in Q4 from 0.6% qoq in Q3, based on the preliminary estimate released today, partly due to 1.5% retrenchment in industrial output.
Australian and New Zealand Dollars
Both the Aussie and Kiwi Dollar endured a tough week and ended down about 1.5% at a 4-5 week low. The RBA’s tone and that of its deputy governor has become far more cautious and markets are seemingly pondering the risk that the next move will be a rate cut. There are certainly signs that economic activity in Australia has slowed, with exports, imports and retails sales soft in December. The Kiwi Dollar was hit by the release of weak labour market data but has managed to bounce back 0.4% in the past 48 hours.
