The highlight for the euro came on Monday when the leaders of France, Germany and Italy met on an aircraft carrier to exchange pleasantries and discuss the future of the EU. It was the euro’s only newsworthy outing in a week of European Central Bank silence and unremarkable €Z economic data. Preliminary purchasing managers’ index readings from Euroland pointed to continuing growth in the private sector despite slightly decreased business confidence.
The US dollar and British pound both did better than the euro this week, strengthening by half a cent and one cent respectively.
There were no US data to help the dollar: its success was entirely the result of comments by Federal Reserve chiefs, who did their utmost to rekindle expectations of a 2016 rate hike. Consequently, investors have got it into their heads that when Federal Reserve chairperson Janet Yellen speaks on Friday (14.00 GMT) she will do so in a hawkish tone, upping the ante for an interest rate increase before the end of the year and perhaps hinting at a September hike. Whilst Ms Yellen herself has said nothing to encourage this thinking, the supposition is that her deputy’s own hawkish comments at the end of last week reflected the view of his boss.
While stopping well short of promising a 2016 rate hike Fed vice chairperson Stanley Fischer gave a particularly upbeat economic view to his audience in Aspen. “We are close to our targets… I expect GDP growth to pick up… employment has increased impressively… I am an optimist.” He left investors still uncertain about a rate increase next month but gave the strong impression that, if it were up to him, there would be one.
Sterling came close to being the week’s top performer – having put in the best performance among the premier league currencies – as investors remained encouraged by last week’s better than expected UK employment, inflation and retail sales data – news that came as a huge relief to those who had feared UK economic activity falling off a cliff in the aftermath of the Brexit vote. Much like its American counterpart there was no data released over the last 5-days to justify the pounds upward trajectory, which appeared to be the result of investors covering more of their speculative short positions in light of the previous week’s upbeat economic outlook. And it isn’t as if there is any scarcity of short positions:
official figures from the US financial futures market show that the number of shorts has increased every week since the referendum.
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