Euro Weekly 15 June 2018
Ecostats throughout the week and Tuesday’s debate in the House of Commons over amendments to the EU withdrawal bill have all had effects on the pound, this week. UK production data was disappointing and NIESR announced economic growth in the May quarter at 0.2%. This equated to a 0.2% average fall against the other ten most actively traded currencies. Disappointing manufacturing data saw a dip in sterling, but overnight recovered to a near 0% change against the dollar and half a cent lower against the euro. After rebels within the government were pacified of their concerns over parliamentary involvement in the final Brexit treaty, sterling’s supporters also seemed satisfied with the outcome. Whilst predictions had been somewhat negative, sterling was an average of 3% firmer on the day against the other ten most actively traded currencies. This strength was then bolstered further by retail sale data release for May.
After this first quarter slump in retail following particularly bad weather, ONS data showed a rise in retail sales for a second consecutive month. UK retail sales rose by 1.3%, which is substantially ahead of market expectations of growth of 0.5%. Following the release, the pound was quoted as 0.43% higher at 1.3440 against the US dollar, and 0.24% higher against the Euro at 1.1365.
The big news for the euro this week was the ECB announcement of a definite end date to the QE programme, together with confirmation that no interest rates were scheduled for the near future. The euro lost ground on the news, although with so much happening in the political sphere including some ferocious trade debates, it may be that the ECB has taken the right approach to steady the ship in uncertain times.
A dramatic end to the G7 summit, surprisingly, saw very little change to the FX market. This summit in Quebec was quickly followed by the fervently anticipated summit in Singapore that saw President Trump and North Korean leader, Kim Jong-un signing a one-page agreement about the future of denuclearisation of the Korean Peninsula, also saw little movement in the US dollar’s strength. Post-meeting, the US dollar was a quarter of a cent firmer against the euro and the Japanese yen, and practically unchanged against all other currencies. Not long after that came the news that the administration could activate its tariffs on Chinese goods as soon as Friday. The dollar went into reverse. Fed chairman Jerome Powell had nothing to say in his press conference to stem the decline and the dollar came away with daily losses of a third of a cent to sterling and two thirds of a cent to the euro. Later in the week saw the US Federal Reserve vote to raise the target for its benchmark interest rate by 0.25% as a result of solid economic expansion and a reduction in unemployment. This decision will lift the target for the central bank’s benchmark rate to 1.75-2% which is the highest level since 2008. The dollar strengthened off the back of the decision, adding half a cent against the pound and the euro.
Towards the end of the week, the Canadian dollar hit a three-month low against the US dollar, which rose unchecked across the foreign exchange market. On Thursday, the Loonie was trading 0.8% lower against the greenback, showing its biggest decline since March 2013.
The Australian jobs data, already released, showed the rate of unemployment falling to 5.4%. There was minimal reaction by the Aussie. Both the Australian and New Zealand dollars are currently struggling as the rhetoric and practicalities of impending trade wars take their toll.
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