The second week of the New Year saw global risk appetite rebound. The S&P 500 was up for five consecutive sessions, by a cumulative 6%, and managed to hold steady on Friday. This was reflected in the currency markets, with the more risk-sensitive Australian and Kiwi Dollars up by about 0.8% in trade-weighted terms while the safe-haven Swiss Franc weakened about 0.4%. Sterling made a 0.4% gain despite Brexit-related concerns ahead of tomorrow’s crucial vote and the Euro was broadly flat despite weak German export and industrial output data.
But this was largely due to Dollar weakness, with the trade weighted index shedding a further 0.9% to a new multi-month low of Thursday. The neutral stance which Federal Chairperson Powell and the majority of FOMC member have adopted in recent weeks has seen markets price out any further rate hikes this year. Along with evidence of slowing US economic growth and muted inflationary pressures this is weighing on a Dollar which had appreciated 5% in 2018 although it has been broadly stable in the past three trading sessions.