Weekly Brief

Weekly Brief

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Fluctuating risk appetite

GBP

The third reading of the EU withdrawal agreement bill went through the House of Commons on Thursday with a majority of 99. It was a foregone conclusion, and received little media attention. Sterling was unaffected by the news. The pound was affected, however, by the Bank of England governor when he talked about monetary policy. In his speech Mark Carney offered more than one hint that the Monetary Policy Committee would consider lower interest rates if the economy were to slow. His comments took the edge off what was still a fairly successful week for sterling. It strengthened by an average of 0.4%, adding a quarter of a euro cent and losing two fifths of a US cent.

Economic data from the UK economy were mostly mediocre. There were a couple of bright spots though. Nationwide and the Halifax both reported rising house prices in December. The services sector purchasing managers' index came in at 50, exactly on the boundary between boom and bust and beating the forecast 49.2.

 

EUR

On average the euro strengthened by 0.2% against the other major currencies, holding steady against the Canadian dollar and losing half a US cent. It was an unremarkable week for all the right reasons: the euro zone economic data threw up no major challenges and there were no real political wobbles. As a result, the euro's movements were mostly the result of external, rather than home-grown forces. 

The weakest statistical link for the euro was, as usual, German manufacturing. Investors have become inured, if not immune, to weak data from that sector and they were treated to more of the same this week. Factory orders fell 1.3% in November and were down by 6.5% from the same month in 2018. Industrial production increased by 1.1% the same month but was still 2.6% lower on the year. The pan-euro-zone data were not particularly instructive. Inflation was in line with forecast at a provisional 1.3%. Retail sales were up by a monthly 1.0%. 

 

USD

The dollar somehow managed to take first position for the week, strengthening by an average of 0.7% against the other majors. Given that the Japanese yen was in second place, it is fair to conclude that it was the safe-haven character of the two currencies that attracted buyers. However, that demand for safety was anything but steady through the week. It was there last Friday, in the wake of the assassination of an Iranian general; it evaporated on Tuesday after the US defence secretary played down talk of escalation; it spiked on Wednesday when Iran attacked US facilities in Iraq; it faded the same day after the US president said "all is well". 

US economic data tended to be supportive of the dollar. Friday's ISM manufacturing sector purchasing manager' index was not, being a point lower on the month, but Monday's services PMI from Markit came in stronger than expected at 52.8 and Tuesday's reading from ISM was an entirely respectable 55.0. ADP's strong employment change reading encouraged investors to expect another punchy rise in nonfarm payrolls in this Friday's employment report.

 

CAD

The Canadian dollar was unchanged on the week against the euro. It lost two fifths of a US cent and gave up a third of a cent to sterling. As much as anything, its direction and speed were a function of changes in the price of oil. The Loonie did not follow slavishly but its decline against the US dollar coincided roughly with a net 5.5% fall in the price of WTI crude. The Canadian dollar's trajectory was also shaped by investors' wider appetite for risk, which itself depended on their perception of the spat between Teheran and Washington. There was more than one bump along the way for that, the latest coming on Thursday when Iran denied shooting down - either by accident or design - a Ukraine airliner.

Data released during the week showed a narrowing of the trade deficit, a fall in building permit issuance and a deterioration in the Ivey purchasing managers' index. Bank of Canada governor Stephen Poloz gave what he described as a "fireside chat" as part of his farewell tour but said nothing momentous about monetary policy.

 

AUD

The allegedly risky Australian dollar shared last place for the week with the supposedly safe-haven Japanese yen. It was an odd relationship, which was roughly steady with the exception of an upward spike for the yen on Tuesday night. That aberration arose from Iran's missile attack on US military installations in Iraq. It was quickly corrected after Iran's foreign minister declared an end to the retaliation and America's president said "all is well". In the end the Aussie lost four fifths of a US cent and gave up a cent and two thirds to sterling. It fell an average of 0.5% against the other majors.

 

NZD

Much as it had during the previous week, the NZ dollar failed to find a purpose. During the first half of the week it drifted higher against the Aussie and on Wednesday it began to drift lower. On the week the Kiwi is 0.5% higher against the Australian dollar, half a cent lower against the US dollar and down by four fifths of a cent against sterling. On average it is unchanged against the other major currencies.

NZ economic data were even fewer than usual. The GDT index showed dairy prices rising 2.8% higher in the two weeks to 7 January. ANZ's commodity price index fell 2.8% in December "due to weaker prices for lamb, beef and kiwifruit". The index was 9.4% above its level 12 months previously.

GBP: Governor hints at lower rates

GBP: Governor hints at lower rates

EUR: German manufacturers let down the team

EUR: German manufacturers let down the team

USD: Trouble with Iran

USD: Trouble with Iran

CAD: Shadowing oil prices

CAD: Shadowing oil prices

AUD: Weak PMIs

AUD: Weak PMIs

NZD: Nothing to say for itself

NZD: Nothing to say for itself

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