Weekly Brief

Weekly Brief

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Weekly Brief - 21st September 2018

EUR weekly currency update

The week's most telling development was that there was almost no reaction by financial markets to America's imposition of tariffs on $200bn of Chinese goods and China's retaliatory taxes on $50bn of US stuff. Investors have lost interest in the trade war and they appeared to have lost interest in the euro too. It gave up half a cent to sterling and added four fifths of a US cent but investors did not really care either way. Euroland ecostats were few: inflation was unchanged at 2.0%, the trade surplus was a little narrower at €12.8bn and that was about it.

In view of the way EU leaders trashed Theresa May's Brexit plan in Salzburg on Thursday, sterling had a pretty good week. Higher-than-expected UK inflation data on Wednesday and forecast-busting retail sales figures on Thursday were enough to offset any worries about a no-deal Brexit: investors just don't believe it will be allowed to happen.

USD weekly currency update  

The dollar got off to a good start last Friday. Disappointment at a small 0.1% monthly increase in US retail sales was more than offset by upward revisions to earlier months and a chunky 6.6% annual rise. This week, however, investors did not want to know. Most strikingly, they seemed not to care about the tariffs on $200bn of Chinese goods imposed by the White House or the retaliatory Chinese taxes on $50bn of US produce. The safe-haven Japanese yen was the biggest loser but the dollar lost a cent and a half to sterling and half that much to the euro.

Sterling received help from Wednesday's UK consumer price index data, which showed inflation unexpectedly accelerating to 2.7%, and Thursday's equally unexpected 0.3% monthly rise in retail sales. Investors brushed off the EU's dismissal of Theresa May's Brexit plan on Thursday: they still see little risk of a no-deal Brexit.

CAD weekly currency update

The only Canadian ecostat of any consequence during the week was a 0.9% monthly increase in manufacturing shipments. It was a good number but had little visible impact on the Loonie. Of far greater importance was this week's robust rebound for oil prices, a move mirrored by the Loonie's performance against the US dollar. It picked up a net half a US cent, though it still lost four fifths of a cent to sterling. The continued lack of a new NAFTA trade deal with the United States is a niggling problem for the Loonie but investors are not unduly concerned: they expect one to be achieved eventually.

Investors have the same thought about Britain's eventual Brexit deal with Europe, despite the comprehensive trashing of Theresa May's Chequers plan in Salzburg on Thursday. It was a setback for sterling but not a big enough one to undo the good done by higher-than-expected UK inflation and retail sales data earlier in the week.

AUD weekly currency update

The Aussie had almost nothing to say for itself. There were no economic statistics of any significance and the sole utterance from the Reserve Bank of Australia - a speech by assistant governor Chris Kent - focused more on money supply than the economic outlook. That is not to say the Australian dollar struggled for support. The help came, surprisingly, from Trump's trade war. The US administration imposed tariffs on $200bn more Chinese imports and China retaliated with tariffs of its own on $50bn of US goods. And investors didn't care. They appear to have lost interest in the trade war and there was no sign of the usual flight to safety. The safe-haven Japanese yen was the week's biggest loser and the allegedly "risky", commodity-oriented Aussie took a quarter of a cent off sterling and added one US cent.

Sterling had a reasonably successful week, assisted by higher-than-expected UK data for inflation and retail sales. It suffered a setback on Thursday after EU leaders rejected Theresa May's "Chequers" Brexit plan but investors still expect an agreement of some sort to be reached eventually. 

NZD weekly currency update

The Kiwi had a good week, strengthening by one US cent and adding almost a cent against sterling. Its biggest boost came from Thursday's figures for second quarter gross domestic product. The NZ economy expanded by 1.0% in Q2, putting annual growth at 2.8%. The numbers were appreciably better than investors had expected. Additional help for the NZ dollar came from a general drift away from safe-havens and towards emerging market and commodity-oriented currencies. That move came despite the imposition and counter-imposition of new trade tariffs by Washington and Beijing. Investors appear to have lost interest in Trump's trade war.

Sterling did tolerably well, thanks mainly to higher-than-expected UK inflation and retail sales data. It took a hit after EU leaders rejected Theresa May's Brexit proposal but not too much of a hit: investors remain confident that a deal will eventually be agreed.

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