US Dollar
The Dollar, which had hit a four-month high on 31 May, slid against all major currencies last week, with the trade-weighted index shedding 0.7%. In response to soft US macro data, in particular labour market figures for May, and an increasingly dovish Federal Reserve, markets have upped their pricing of Fed rate cuts to 62bp for the remainder of 2019 and are now pricing in a 85% chance of a rate cut by end-July. A number of banks are now predicting that the Fed will have no choice but to cut its policy rate 25bp at its June meeting, even this is not yet consensus.
Sterling
While the GBP/USD cross ended the week above 1.27 for the first time since 26th May, the Sterling trade-weighted index weakened 0.2% due mostly to its 0.6% depreciation versus the Euro. US President Trump’s state visit to the UK went reasonably smoothly but the far bigger question of whether, when and under what circumstances the UK will exit the European Union remains unanswered and this uncertainty is clearly holding back Sterling. Moreover, UK macro data remain at best mixed. While the services PMI rose slightly in May, the manufacturing PMI collapsed and unofficial data point to very weak May retail sales. Prime Minister Theresa May officially resigned on 7th June but will remain as leader until the ruling Conservative Party appoint her successor, most likely towards end-July.
Euro
The Euro was one of the best performers last week, appreciating 0.7% to its strongest level since mid-January, with EUR/USD trading above 1.13 for the first time since mid-April. Markets reacted dovishly to the ECB’s policy statement that it now expects to keep its policy rates unchanged until H1 2020 (rather than H2 1019) and are now pricing in 10bp of rate cuts by April. But the Euro, unlike the Dollar, has rallied.
Kiwi Dollar
The Kiwi Dollar, which had been under pressure a month ago in the face of a very dovish RBNZ, extended its impressive recovery last week, appreciating 1.4% to its strongest level since mid-April. While the RBNZ may cut its policy rate again it is no longer the only major central bank with a clear easing bias. The RBA followed suit last week with a 25bp rate cut and other central banks are clearly, even if slowly, moving in that direction.
