Price action in major currencies was again subdued last week, with few tier-one macro data releases for markets to focus on. Only a handful of developed and emerging market currencies appreciated by more than 1% versus the US Dollar, including Sterling (+1.1%), and no major currency depreciated by more than 0.7% (Indian Rupee).
The net result was that the Dollar trade-weighted index was down only marginally (-0.2%). As was the case last week stronger-than-expected US macro numbers are pointing to a decent rebound in economic activity in May-June, but while they are dampening downward pressure on the Dollar they are on the whole still mostly benefiting US and global equities. The S&P 500 was up 1.8% last week and closed at a one-month high on Friday.
US job opening and hires rose faster than expected in May and the US ISM non-manufacturing PMI, a survey of economic activity in the key US service sector, surged to far higher-than-expected 57.1 in June from 45.4 in May. The 11.7 percentage point monthly increase in the index was the largest on record and took the PMI back to its February level when the US economy had not yet been subject to any state lockdowns or social distancing regulations and was arguably still running near normal (the state of Washington was the first mainland state to declare a state of emergency and did so only on 29th February).
Sterling outperformed for the second consecutive week, appreciating 0.7% in trade-weighted terms to a one-month high. FX markets have seemingly concluded that Chancellor of the Exchequer Richi Sunak’s summer statement (effectively a mid-year mini-budget) is a net positive.
While spending measures announced in March-April were designed to provide life-support for a UK economy under lockdown, Wednesday’s fiscal-give away is de-facto a “transition” budget to ease the economic pain associated with re-opening the economy. The spending measures, which amount to about £25-30bn (1.0-1.2% of GDP), are squarely aimed at spurring consumer demand, particularly in the critical hospitality sector, and the labour and housing markets in coming months before a number of critical fiscal measures (including the furlough program) start being unwound.
The Australian and Kiwi Dollars had somewhat contrasting fortunes, with the former weakening about 0.4% and the latter appreciating 0.3%. Nevertheless the market’s reaction to the Reserve Bank of Australia policy meeting on 7th July was reasonably muted.
The Euro gained 0.5% against the slightly weaker US Dollar last week but continued to trade sideways in trade-weighted terms as did the Swiss Franc.
