Weekly Brief

Weekly Brief

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Sterling gets off lightly

GBP

Despite languishing in last place on Friday and Monday, the pound managed to avoid any great embarrassment for the week as a whole. Sterling's biggest loss was to the Swiss franc, where it fell 0.9% as a result of concern that the Swiss National Bank might not in future hold down its currency. The pound's biggest break came after the Prime Minister appeared in a TV interview. Whilst a trade deal is "very very very likely" it is not guaranteed: "you always have to budget for a complete failure of common sense". Rather than dwell on the possibility of failure, investors chose to focus on the PM's opinion that it is "epically likely" that an agreement will be reached ahead of the 31 December deadline.

The UK data were not especially helpful. Industrial and manufacturing production fell in November and gross domestic product shrank 0.3% in the same month. Headline inflation slowed to 1.3%. Whilst a rate cut by the Bank of England is not expected on 30 January, it cannot be ruled out.

 

EUR

On average, the euro was almost unchanged against the other major currencies. It added a quarter of a US cent and strengthened by a third of a cent against sterling. The euro kept itself mostly to itself, with low-key economic data and little political intervention. A speech by European Central Bank President Christine Lagarde on Thursday went nowhere near monetary policy. Rather more interesting were the "accounts" of December's Governing Council meeting, the first chaired by Ms Lagarde. The general sense was of greater optimism, or at least less pessimism: "While the risks to the growth outlook 'remained tilted to the downside'", "these risks had become somewhat less pronounced."

There was little of consequence among the Euroland ecostats, just a narrowing of the trade surplus and a smaller annual decline in industrial production. Data from Germany put GDP growth for calendar 2019 at 0.6% and inflation at 1.5%, both in line with forecast.

 

USD

The United States contributed more than its fair share of the week's economic statistics. Relative to forecast there were more misses than hits among the numbers but there was nothing to cause any real headaches for the dollar. It was all but unchanged against the pound and lost a quarter of a cent to the euro. Last Friday's employment report was disappointing, with nonfarm payrolls rising by less than expected. Headline inflation was on target at 2.3%, though some of the components were lower than expected. Retail sales increased by 0.3% in December, as forecast, with the "control group" coming a little higher than expected at 0.5%.

The signing of a "phase one" trade agreement between Washington and Beijing came almost as an anticlimax. It had been "around the corner" for months and, anyway, amounts to little more than a truce to improve Trump's chances in November's election. The same can be said of impeachment proceedings against the President, which kicked off in the Senate on Thursday: his eventual acquittal is seen by many to be a foregone conclusion.

 

CAD

Last Friday's Canadian employment data went down a lot better with investors than the equivalent numbers from the States, which came out at the same time. Where the US data missed the mark the Canadian figures mostly exceeded expectations. Unemployment fell from 5.9% to 5.6% as the economy added more than 35k jobs in December after two months of losses. Supporters of the Loonie fancied that the numbers might persuade the Bank of Canada to put aside thoughts of a rate cut, though the slowdown in wage growth from 4.4% to 3.8% could scupper that argument. 

The Bank of Canada's quarterly Business Outlook Survey was broadly optimistic but had no real impact on the Loonie. It is all but unchanged on the week against sterling and the US dollar. Oil's 10% correction from the early January highs had less effect on Canada's dollar than it did on Norway's krone.

 

AUD

After an expensive start to the year, the Aussie stabilised at the end of last week and spent the last few days trying to regain some of the lost ground. It added a fifth of a US cent and picked up two thirds of a cent against sterling. Against the euro it was unchanged. There was help from at least some of the Australian ecostats. Retail sales surprised on the upside, increasing by 0.9% in November. Mortgage approvals increased by 1.8% and new loan commitments for investor housing were up by 2.2%. On the other side of that coin, new home sales in November were 0.5% lower on the month. Widespread bushfires are thought to have contributed to that decline.

Economic data from Australia's biggest export customer, China, were theoretically disappointing but did no practical damage to the Aussie. The trade surplus narrowed as imports rose at twice the pace of exports. Gross domestic product expanded by 6% in 2019, the slowest growth in 29 years but still an impressive pace in comparison with other large economies.

 

NZD

A mostly constructive week for the Kiwi took it an average of 0.2% higher against the other major currencies. It added a fifth of a US cent and strengthened by three quarters of a cent against sterling. The NZ dollar was practically unchanged against the Aussie. There was at least theoretical help for the Kiwi - as for all commodity-related currencies - from the signing of a Sino-US "phase one" trade agreement. If nothing else, it marks a truce in the long-running dispute and ought to oil the wheels of international trade. However, the agreement had been awaited for so long that much of its effect was blunted and there was no obvious impact on the NZ dollar. 

The NZ economic statistics were not of great help. NZIER's Quarterly Survey of Business Opinion showed a "pick-up in business confidence" but really served only to damn with faint praise "with a smaller proportion of businesses expecting a worsening in general economic conditions". Business NZ's performance of manufacturing index was equally unhelpful, falling into the contraction zone at 49.3.

GBP: Trade deal is very very very likely

GBP: Trade deal is very very very likely

EUR: More upbeat ECB

EUR: More upbeat ECB

USD: Jobs numbers disappoint

USD: Jobs numbers disappoint

CAD: Helpful employment data

CAD: Helpful employment data

AUD: Stopping the rot

AUD: Stopping the rot

NZD: Less pessimism in places

NZD: Less pessimism in places

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