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Weekly Brief - 31st August 2018

EUR Weekly Currency Update

In the end there was nothing to choose between the euro and the pound; a mere six ticks separated them after seven days. But that was sterling put in a late run that saw it recover a cent and a half of ground it had frittered away earlier in the week. That recovery, if not Brussels' doing, was at least the work of its chief negotiator Michel Barnier. On Thursday he told reporters that Britain could have a post-Brexit trade deal "such as there has never been". The French prime minister appeared to support the line when he said he would use the EU summit in Salzburg to push for a deal.

Away from the Brexit story the news from Euroland did not amount to much. Pan-euro-zone ecostats were limited to the European Central Bank's money supply figures. Germany reported revised second quarter growth of 0.5% while France could only manage 0.2%.

USD Weekly Currency Update 

Another losing week for the dollar took it a cent and a half lower against both the euro and the pound. The US economic data, whilst on average okay, were all over the place. Durable goods orders were down by a monthly 1.7% and rose by just 0.2% when the effect of "transportation" items - trains and boats and planes - was stripped out. On the other hand, second quarter gross domestic product put growth at an annualised 4.2%, double that of Germany and more than five times the size of France's expansion.

The dollar mood was negative from the outset, thanks largely to investors' unease about the escalating trade war. Sterling was mostly out of favour too until Thursday, when the EU chief negotiator offered Britain a post-Brexit trade deal "such as there has never been". The pound shot a cent and a half higher and held onto its gains.

CAD Weekly Currency Update

It was a strange week for the Canadian dollar. As the US president launched trade negotiations with Mexico - from which Canada was excluded - and came close to signing a bilateral deal, the Mexican peso fell and the Loonie went up. The Loonie eventually booked a gain of three quarters of a US cent, though it lost half a cent to sterling. Investors appeared to be banking on a belief that Canada would eventually brought into the US/Mexican trade fold in a modified version of the old NAFTA relationship, even if Ottawa is not completely happy with the new regime.

Sterling struggled through the early part of the week, hampered by ever-louder talk of a no-deal Brexit. Its fortunes were reversed on Wednesday by a comment from the EU's chief negotiation, Michel Barnier. He told journalists that he would offer Britain a deal "such as there has never been" and France's  president Macron later appeared to support that line.

AUD Weekly Currency Update

Australia's new prime minister did not exactly energise his currency. It pottered a little higher into the weekend before flat-lining against the pound. The lack of movement might have continued for another week had it not been for the unexpected intervention of Michel Barnier, the EU's chief negotiator. He announced that Britain would be offered a trade deal "such as there has never been". Investors were bound to infer that it would be a good deal, not a rubbish one, and they sent sterling higher. In the end the Aussie lost two and a third cents to the pound. It was just about unchanged against the US dollar and a touch firmer against the Kiwi.

The Aussie might have done better towards the end of the week had it not been for a disappointing set of data on Thursday morning. Building permits in July were down by a monthly 5.2% and were 5.6% fewer than the same month last week. At the same time private capital expenditure (business investment) came in 2.5% lower for the first quarter.

NZD Weekly Currency Update

The Kiwi did not do as good a job as usual in keeping its head down. There were not many NZ economic statistics to entertain investors - just three of them - but they were not very good and they hurt the NZ dollar on Thursday morning. Building permits registered a second month of decline; 10.3% in July after an 8.2% fall in June. Shortly afterwards, the ANZ bank released its monthly outlook for the New Zealand economy, which it chose to entitle "Spooked". Business confidence was down by five points at -50.3 and the "own activity" measure was teetering above breakeven at 3.8%. The numbers spoiled what could have been a rather better week for the Kiwi. It lost a sixth of a US cent and gave the thick end of three cents to sterling.

The pound got a gold-plated get-out-of-jail-free card on Wednesday from, of all people, EU chief negotiator Michal Barnier. He said he would offer Britain a trade deal "such as there has never been". Not surprisingly, after all the no-deal Brexit gloom, the pound popped higher.

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