Euro Weekly 27 April 2018
Sterling lost three quarters of a US cent and a third of a Swiss cent on Monday but elsewhere the pound was higher, with a daily average gain of 0.3%.The positive growth continued into Tuesday when it topped the major currency rankings for the first time in more than a week. The pound’s gains averaged 0.4%; it took a quarter of a cent each off the euro and the US dollar. The reasons for this aren’t clear, but on the borrowing front, the government made a net repayment of £300m in March. For the financial year 2017-18 as a whole public sector borrowing amounted to £42.6bn, nearly three billion less than the chancellor predicted in last month’s Spring Statement. The CBI survey found industrial orders and selling prices in April behaving similarly to the previous month while optimism faded from 13 to -4. The CBI’s Distributive Trades Survey a balance of -2 per cent, compared to expectations of 16 per cent growth. High street sales were flat in the year to April, and while 31% of retailers said sales were up in April, 33% said they declined. April also saw consumer confidence fall from a 10-month high according to the Gfk index. The main index fell back to -9 in the month, down from -7 in March and there was also a fall in the measure of the public’s expectations for their personal financial situation over the next 12 months, which fell from 10 to 4, suggesting people are feeling less confident, despite the decline in inflation and wages that the Bank of England expects to underpin spending.
On Thursday, Mario Draghi released the April statement from the ECB and it was more of the same, which didn’t help the euro. The ECB’s official monetary policy statement and actual policy settings remained unchanged, while ECB President Mario Draghi shrugged-off growth momentum fears but ultimately gave traders little reason to bid the Euro higher. Any loss of growth momentum in the Eurozone at the start of 2018 was observed as a temporary phenomenon due to “bad weather, strikes and the timing of Easter,” and the focus was on the broader themes of regional growth and convergence with more normal levels of inflation in the medium-term – at or just below the ECB’s target of 2.0%.
The US dollar, finished last week as the top performer and this continued early this week. The reasons for its rally are a combination of excessively short positions and the expectation of higher US interest rates. The higher public deficit and inflation implied by tax cuts and increased spending has driven 10-year bond yields to a four-year high of 3% and that, in turn, has sucked in buyers of bonds and the dollar. The growth eased off midweek, when the US dollar strengthened by an average of 0.2%, sharing second place with the euro and the Canadian dollar. Houses were up by an annual 6.8% according to the Case-Shiller index of metropolitan prices. The Federal Housing Finance Agency’s Housing Price Index came in at 0.6%, down from the previous month’s 0.9% but a tick better than forecast. New home sales were up by a monthly 4.0%, more than twice the predicted 1.9%. The only disappointment was the Richmond Fed’s manufacturing index, which fell 18 points to -3. The US 10-year treasury bond yield moved above 3% which helped the US dollar, it offers a better return than any other major government can offer, save for Mexico, Brazil and India. In contrast, Britain’s 10-year government bonds return 1.54% and Germany’s 0.63%.
Canada’s dollar was winged by some slightly disappointing statistics on Friday. A 0.4% monthly rise in Canadian retail sales relied entirely on car sales and inflation at 1.4% was a tick below forecast. The Canadian dollar lost four fifths of a cent on the day but positive sentiment towards the Greenback helped it avoid more damage. Stephen Poloz, the governor of the Bank of Canada made an appearance at the Senate Standing Committee on Banking, Trade and Commerce, accompanied by Senior Deputy Governor Carolyn Wilkins. In his speech, he highlighted that the economy was “finally positive” after a long adjustment to a sharp fall in oil prices, but he added there was still softness in several areas of the country. Poloz also told the Senate’s banking committee that while interest rates would go up from their current low levels, moving too quickly could create a financial stability risk.
The Australian inflation data came in a tick short of expectations at 1.9% while the Reserve Bank of Australia’s “trimmed mean”, at the very same level, was a tick above forecast. For the Aussie it was a no-score draw.
The NZ dollar had a difficult time last week; technical factors weighted against it and there was nothing this week to reverse the trend. In 2018 it has tracked a horizontal range against the US dollar mainly between US$0.72 and US$0.74. Having touched the top of that range ten days ago, and failed to break higher, it headed back towards the 0.72 support.
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