With global equities under pressure last week, the Euro, Sterling and Kiwi Dollar were all down 0.2-0.4% with the Australian Dollar (and many high yielding emerging market currencies) posting losses of 1.5-2.0%. Conversely, the “safe-haven” Swiss Franc appreciated about 0.8%.
Dollar
The Dollar remains largely directionless in the middle of a narrow range in place since late October. The next big hurdle will be the Fed policy meeting on 19 December. While markets still expect the Fed to hike rates 25bp they are now only pricing in about 20bp of hikes in 2019 (versus 60bp only a couple of months ago). This far more modest pricing of rate hikes, due in part to market concerns about the outlook for US and global GDP growth, is arguably acting as a headwind for the Dollar.
Euro
The Euro has held up reasonably well despite developments in France (and the political uncertainty in the UK), continuing to ebb and flow within a reasonably narrow range.
Sterling
Sterling last week again weakened further and is now trading at its lowest level since late-August in trade-weighted terms. There is a significant risk of parliament voting down the government’s draft Brexit deal, based on reports, and markets seemingly believe, rightly or wrongly, that there is still a reasonably high risk of the UK leaving the EU without a deal. Moreover, UK macro data on the whole continue to disappoint, including today’s release of monthly GDP data showing only 0.1% mom growth in October.
Australian and Kiwi Dollars
The Aussie Dollar was one of the weakest performing currencies last week, dropping nearly 2% after some dovish comments by RBA Deputy Governor Debelle last week. RBA Deputy Governor Kent yesterday was more upbeat and less dovish than Debelle, adding that the next move will likely be a rate hike and calming rate cut speculation. Australian housing finance data (out this morning) were also a surprise positive considering the reported weakness in the housing sector and the Aussie Dollar is up about 0.4% in the past 48 hours. The RBA will now not meet until next year and the currency may lack clear direction.
Swiss Franc
The Swiss Franc, which had dipped in the wake of weak Q3 GDP data, rallied nearly 1% last week, seemingly on the back of safe-haven flows.
