Weekly Brief

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Weekly Brief - 26th October 2018

EUR weekly currency update

The euro was in the middle of the field, unchanged on average against the other ten most actively-traded currencies. It achieved a better result than the antipodean dollars and Northern Scandinavian crowns and a worse one than the other premier league currencies, losing almost one US cent and more than one Japanese yen. Economic data from the euro zone did it no favours: the purchasing managers' index readings from both Germany and pan-Euroland were lower on the month and fell short of forecast; German investors confidence softened. Investors continued to fret about the argument between Brussels and Rome about Italy's proposed deficit-busting budget, and they were not overly impressed when Moody's downgraded Italy's credit rating.

Like every other major currency the euro  made headway against the beleaguered pound, adding just under a cent. Although declines in UK mortgage approvals and manufacturing orders did not help, sterling's main problem was the lack of progress on Brexit negotiations.

USD weekly currency update

The dollar took second place to the Japanese yen, strengthening by an average of 0.7% against the other ten most actively-traded currencies. Its trajectories against the euro and the pound looked very similar - not exactly straight lines but with few signs of hesitation. The dollar added two cents against sterling and took nearly one cent from the euro. It was not the best week ever for US economic statistics: new, pending and existing home sales fell in September and the Richmond Fed's manufacturing index was lower.  However, investors unhappy with Italy's provocative deficit plans and Britain's apparent desire to throw itself off a Brexit cliff-edge had to go somewhere. The United States and Japan were far enough away to look attractive.

There were three ecostats to affect sterling. The fall in public sector borrowing was welcomed by investors; the falls in mortgage approvals and manufacturing orders were not. But of course it was not the data that did the damage, it was the dismal state of Brexit negotiations.

CAD weekly currency update

It was a game of at least four halves for the Loonie. It came to grief last Friday when investors saw unexpected falls in retail sales and inflation.  It held steady during the first half of this week as the market awaited a near-certain interest rate increase by the Bank of Canada. It strengthened immediately after the BoC put out a surprisingly bullish assessment of the economic outlook. And it weakened on Thursday and through Friday as the US dollar took the global lead. Overall the Canadian dollar lost a quarter of a US cent and strengthened by two cents against the benighted pound.

One good UK statistic - public sector borrowing was less than expected in September - and two bad ones - mortgage approvals and manufacturing orders both fell - made little difference to sterling. Investors were focused on Brexit and they were as unimpressed as ever about what was not happening. The pound was weakest among the major currencies. 

AUD weekly currency update

Stock market volatility, the ongoing trade war, controversy regarding Italy's deficit budget, disappointing economic data from China, Saudi Arabia's fiasco in Istanbul, Brexit; they all contributed to a general unease among investors. For the Aussie it meant a net loss of three quarters of a US cent.  There was not a single Australian economic statistic to help the currency so it was driven by the goings-on elsewhere and how they might affect Australia. A by-election defeat for the government, which cost it its parliamentary majority, did not help the Aussie's case.

There was little to help sterling's case either. Investors applauded a fall in public sector borrowing but were less enthusiastic about falls for mortgage approvals and manufacturing orders.  More importantly, anxiety continued to grow about the nature of Britain's exit from the EU. The prime minister's overtly warm reception from the 1922 committee of backbench MPs did not fool anybody. Sterling lost four fifths of an Australian cent.

NZD weekly currency update

There was no lessening of the downward pressure that has taken the antipodean dollars lower since the beginning of the year. For the Kiwi it meant a loss of four fifths of a US cent in the last week. The ostensible cause of the NZ dollar's decline was the trade deficit announced on Thursday morning. It was wider than expected as imports grew by more than exports. But other factors were involved, particularly the unease among investors caused by issues such as Trump's trade war, Italy's proposed budget deficit,  relative softness in the Chinese economy and of course Brexit.  

Unsurprisingly, Brexit did more damage to the pound than it did to the Kiwi.  It lost half a NZ cent over the week as it took last place among the major currencies. The UK economic data did not help the sterling either: a fall in public sector borrowing was welcomed by investors but they were less impressed by falls in mortgage approvals and manufacturing orders.

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