The US dollar ended broadly unchanged in trade weighted terms in the face of a somewhat more buoyant global risk appetite and a 2.5% rise in the S&P 500. News that US President Trump may meet Chinese leader Xi Xiping in late-November and reports that the UK and EU may be nearing an agreement on a Brexit deal lifted some of the recent gloom. The Dollar made small gains versus the Swiss Franc, a safe-haven currency which typically underperforms when “risk is on”, but was broadly flat against the Euro and weakened against the Aussie and Kiwi Dollars and in particular Sterling.
US Dollar
The Dollar had made modest gains on Monday-Wednesday but gave these all back and more on Thursday before rebounding on Friday. Weaker-than-expected ISM manufacturing PMI data for October seem to catch a market long-Dollars off guard although another strong set of labour market numbers was a timely reminder that the US economy is still humming along very nicely.
Euro
The battered Euro had fallen to below 1.13 versus the Dollar mid-week after data showed that Eurozone GDP growth had halved to a paltry 0.2% qoq in Q3 while CPI-inflation was going nowhere fast. But EUR/USD managed to claw its way back to around 1.14 on the back of Dollar weakness.
Sterling
The GBP/USD cross, which had fallen in an almost straight line to 1.27 from 1.32 in the second half of October, surged back to 1.30 with a double-boost from a seemingly hawkish Bank of England and reports that the UK had finally reached an agreement with the EU on the issue of financial services. The government is seemingly confident that the two sides will agree on a Brexit deal within the next three weeks and in this scenario the Bank of England made clear that policy rates may have to go up faster. This was bullish talk from both the British government and central bank which over-powered weak UK macro data and growing calls from British business for a second Brexit referendum.
Swiss Franc
The Dollar-Swiss Franc exchange rate remains choppy around parity with the Swiss Franc not helped by weak retail sales growth (a problem for many years) and low and flat-lining CPI-inflation.
Australian and Kiwi Dollars
The Aussie Dollar had held its own against the Dollar early last week, with in line with expectations CPI-inflation data for Q3 giving the market little to work with. Retail sales were weak, the trade surplus was strong but ultimately it was the US Dollar’s weakness late in the week which helped push the AUD/USD cross above 0.72 for the first time in a month. News that US President Trump and Chinese leader Xiping may meet in 3 weeks time to solve the current impasse over trade gave the Aussie Dollar a further leg-up, given the close ties between the Chinese and Australian economies.
