FX volatility was subdued in the first half of last week. It picked up a tad on Thursday and Friday but major crosses remain within multi-week ranges with markets seemingly still trying to gage the appetite for further rate cuts in major economies, including the US, Eurozone, Australia and New Zealand. The S&P 500 on Friday hit a new record high on the back of reports during the week that the US and China were considering reversing some of the import tariffs on each others’ countries.
The Dollar trade-weighted index was up 0.5% last week, with the Dollar now at the top end of an admittedly very narrow 0.7% range in place since mid-October. Conversely, there was no respite for the Euro which was down 0.7% to its weakest level since early April.
Sterling weakened 0.4% last week in trade-weighted terms and GBP/USD temporarily fell below 1.28. Sterling was hit by soft BRC retail sales data for October, another lacklustre composite PMI print, a more dovish-than-expected Bank of England policy meeting and a credit rating outlook downgrade. Two of the nine MPC members surprised markets by voting for a 25bp rate cut (to 0.50%) and on Friday Moody’s downgraded the outlook on its Aa2 UK sovereign credit rating to “negative” from “stable”. The ratings agency, which downgraded the UK’s credit rating in 2013 and 2017, argued that Brexit had led to policy-making paralysis while political parties’ spending promises had no clear financing plans.
The Australian Dollar was choppy within a narrow range around 0.69 versus the Dollar but in the past 48 hours the AUD/USD cross has dropped to 0.686. The Kiwi Dollar depreciated over 1% last week to its lowest level since 20 September but since Friday has rebounded 0.4% as markets position themselves for Wednesday’s important RBNZ policy meeting.
