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Stop panicking

GBP

Losing a little off the majors, sterling (GBP) had a week where it experienced all kinds of swings and roundabouts. It kicked off the week with petrol panic buying, and despite the insistence of the government that there is no fuel shortage, queues and empty pumps for the rest of the week didn’t exactly alleviate concerns that the shortage of lorry drivers had hit the fuel industry. According to the Petrol Retailers Association, over a quarter of its members (independent fuel retailers) were still out of fuel on Thursday. Better than the 37% earlier in the week, but still.

Outside of the petrol panic, eyes were on the Bank of England Governor Andrew Bailey (GBP), who left the door open for a rise in interest rates. While a sentiment that normally would strengthen the pound, it wasn’t enough to provide the necessary buoyancy amid the ongoing energy crisis in the UK, among other shortages, and so the pound (GBP) sank against a basket of major currencies. With an estimated 1 million people receiving income through the furlough scheme, which ended yesterday, a rise in unemployment is also expected. Ending on a lighter note, UK GDP released this week shows a 5.5% rise in Q2, up from a preliminary estimate of 4.8% growth, with the ONS figures citing a 7.9% jump in pent-up household spending from April to June.

 

EUR

Kicking off the week with a stumbly start thanks to the German election (EUR), it had always been too tight to call, but Olaf Scholz’s Social Democrats was victorious in the end. It appears incoming conservative leader Armin Laschet has yet to concede, though. The protracted nature of forming Germany’s new government contributed to the euro (EUR) taking minor losses against other major currencies. 

Elsewhere across Europe, business and consumer confidence seems to be improving. Speaking at the ECB Forum on Central Banking, President Christine Lagarde said that Eurozone activity is predicted to return to pre-pandemic levels by the end of the year, with issues surrounding supply chain bottlenecks, labour market shortages and rising energy prices fading throughout the first half of 2022. This is despite power shortages across parts of the continent leading to factory closures and, therefore, rising concerns for post-pandemic economic recovery. 

 

USD

What a week for the Greenback. Reaping the rewards of a rise in US Treasury yields, the benchmark 10-year Treasury yield rose again by 6.2 basis points to reach its highest levels since June in an ongoing and steady increase that began last week. Supported by the rising yields and the expectation that the Fed will soon begin tapering quantitative easing, the Greenback (USD) now stands at its strongest levels of the year, particularly against the euro (EUR), the pound (GBP) and the Japanese yen (JPY). 

The confirmed avoidance of an imminent government shutdown also was a contributing factor. US Congress is expected to approve legislation that would fund the federal government until 3rd December at the earliest, with a short-term extension on government spending.

 

CAD

The energy markets have been adding more value than metals, boosting the Loonie against its cousin down under, the Aussie dollar. Commodity prices are always crucial to the Canadian dollar (CAD) but while focus last week headed to Evergrande, this week it was all about checking oneself against the US economic data. And the US dollar didn’t show signs of stopping.

Still, US jobs data came to the rescue of the CAD, with some investors worrying the numbers are suggesting US employment data is softening. The Canadian dollar has been making small gains against a host of other majors – let’s see if that continues into next week.

 

AUD

Three tales appear to be forming sentiment behind the Australian dollar (AUD). The need for energy could have helped the Aussie (AUD) as oil and gas are significant exports for the country. However, it's iron ore that is quite literally the steel backbone of Australia, and is often the focus of the currency markets – that didn’t help. Risk appetite fluctuated as attention turned to yields, and a potential recall of the Chinese ban on Australian coal also helped form an interesting picture for the Aussie dollar (AUD).

In other news, vaccinated Australians will be allowed to travel, although with strict caveats. After 18 months, the country might be finally opening up.

 

NZD

The big news story from New Zealand this week was how the country planned to ease booming house prices. It has introduced rules to calm down its current housing market to make property speculation less appealing to investors and housing more affordable. The draft law would aim to stop investors from deducting mortgage interest from their taxable income, after house prices rose nearly 26% year-on-year in August. Rising property prices are one of the key challenges faced at the moment by Prime Minister Jacinda Ardern.

This had little impact on the New Zealand dollar (NZD) though, which was down 0.25% on the US dollar (USD) after the news broke, reversing slightly on Monday’s recovery of the pair.

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