Weekly Update 8th March 2019

GBP weekly currency update
GBP: Data? What data?

Hard UK economic evidence was thin on the ground and such numbers as did appear were either unimportant or unnoticed by investors. The purchasing managers’ indices for manufacturing, construction and services were inconsistent: manufacturing slowed, construction declined and services beat forecast. A 5.9% monthly rise in the Halifax house price index made no difference to the pound.

Even Brexit mostly failed to get things moving. As government negotiators propped up the bar of Brussels’ Last Chance Saloon the pound quietly declined against the other major currencies. It came back to life on Wednesday evening when the Lords passed an amendment to a trade bill, requiring the government to join a customs union after Britain leaves the EU. The move reawakened investors’ faith that a no-deal Brexit will be avoided. On average sterling is 0.2% firmer, having gained a quarter of a euro cent and lost one and a half US cents.

EUR weekly currency update
EUR: Investors worry that the ECB is worried

The euro zone ecostats were not exactly good but at least most of them were better than analysts had predicted. A case in point was Italy’s fourth quarter gross domestic product. Investors were heartened to see the economy shrinking by 0.1% because they had been teed up for a 0.2% contraction. The services PMIs from around Europe were all above the 50 breakeven bar, some not by much but a result is a result.

In Frankfurt the European Central Bank was less enthusiastic. On Thursday it said there is no longer any chance of an autumn rate increase. It also announced “A new series of quarterly targeted longer-term refinancing operations (TLTRO-III)… to preserve favourable bank lending conditions”. The ECB went further with its measures than investors had expected. They decided that if the ECB is worried then they should worry too. On average the euro is unchanged, having lost one and two thirds of a US cent.

USD weekly currency update
USD: Better than the others

Last weekend the US president had another pop at the Federal Reserve chairman, blaming his tightening of monetary policy for an unduly strong and uncompetitive dollar. In doing so he failed to acknowledge his own culpability in slashing taxes, which stimulated the economy and made higher rates necessary. Those tax cuts also thwarted the president’s ambition to reduce the trade deficit. In 2018 it was the widest in ten years, thanks to imports growing more quickly than exports.

But never mind. US interest rates are likely to remain comfortably ahead of its peers for the foreseeable future. There is likely to be slower growth down the road but, for now, the American data are mostly stronger than those from Europe. A trade deal with China is said to be imminent. So the dollar had a good week, beaten only by a late run from the yen. It strengthened by an average of 1.5%.

CAD weekly currency update
CAD: A week not to remember

It will be of no consolation to supporters of the Loonie that the South African rand and Northern Scandinavian crowns had an even worse week. The Canadian dollar is down by an average of 0.8% with losses of one and two thirds of a cent each to sterling and the US dollar. A 3% decline in oil prices probably contributed to the Canadian dollar’s lack of success but it will have been a minor role: the Loonie had bigger fish to fry.

Last Friday’s fourth quarter gross domestic product data fell woefully short of investors’ expectations. Quarterly growth of 0.4% was just a third of the forecast 1.2% expansion. On Wednesday, the Bank of Canada noted in its policy statement “increased uncertainty about the timing of future rate increases”. Investors began to wonder if there might not even be one. The two events were instantly expensive for the Loonie and created a generally negative vibe.

AUD weekly currency update
AUD: Nothing from the RBA

After the Reserve Bank of Australia kept its benchmark Cash Rate unchanged at 1.5% on Tuesday governor issued a statement. He noted a strong labour market, slower growth, lower house prices and low and stable inflation, which is likely to pick up over the next couple of years. There was nothing challenging or controversial in the statement and the Aussie was unaffected.

Less than 24 hours later the gross domestic product data showed that Australia’s’ economy did indeed grow more slowly in Q4; by 0.2% instead of the expected 0.3%. Annual growth was 2.3%, down from 2.8% three months earlier. Despite an emollient speech by RBA governor Philip Lowe a few hours earlier – another of his admonitions not to worry about house prices – investors got the idea that the bank might be leaning towards dovishness. A couple of banks jumped in to predict two rate cuts this year. The Aussie is just about unchanged against sterling and has lost four fifths of a US cent on the week.

NZD weekly currency update
NZD: Beating the Aussie

The NZ dollar was almost entirely untroubled by domestic economic data. ANZ’s commodity price index, an indicators of export earnings, went up by 2.8% in February. The fortnightly GDT index of milk prices was up by 3.3%. Manufacturing sales increased by 2.0% in the fourth quarter. The numbers were not much to go on and nothing to worry about.

With little on the home front to get it moving the Kiwi was inclined to do what it does most often and tag along with the Australian dollar. Concerns about the slowing Australian economy were, to an extent, transferred to New Zealand but although the two currencies tended to move in the same direction it was the Aussie that fared worst. The Kiwi strengthened by 0.4% against the Aussie. The NZD lost half a US cent and took a cent off sterling.

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