Weekly Brief

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Weekly Brief - 2nd November 2018

EUR weekly currency update

The economic data were not as kind to the euro as they might have been.  Unemployment - unchanged at 8.1% - and inflation - accelerating to 2.1% as expected - were decent enough but there were flaws elsewhere.  Four of the European Commission's confidence measures were lower on the month and below forecast, while consumer confidence was on target and unchanged. The biggest misses related to gross domestic product:  growth in Italy stalled in the third quarter, highlighting the risks implicit in the Rome's deficit budget, and in pan-Euroland it slowed to 0.2%.  Together they relegated the euro to the back half of the field; it added half a US cent and went down by more than a cent against sterling.

For the pound it was a classic game of two halves. On Tuesday it was by far the biggest loser and the following day it secured a commanding lead over the other majors. In both cases it was Brexit news and gossip - first bad then good - that  drove the moves.

USD weekly currency update

The dollar was all over the place. On Monday and Tuesday it strengthened the most among the major currencies; last Friday and this Thursday it brought up the rear. Overall the dollar lost half a cent to the euro and two cents to sterling. US economic data played only a minor role.  Friday's gross domestic product figures showed growth slowing in the third quarter to an annualised 3.5% from Q2's 4.2%. Translated Investors were not too concerned though, because quarterly growth of 0.9% was still stronger than any of America's peer group have delivered.

Sterling put in a chequered performance too, losing heavily on Tuesday following negative Brexit news and storming ahead the following day when the news became positive. There was a knock-on effect in other markets, as reduced nervousness about Brexit made investors generally more confident.  That confidence was helped further on Thursday night by Trump's claim to have had a useful phone conversation with China's Xi Jinping.

CAD weekly currency update

Although it picked up a fifth of a US cent along the way it was not an entirely successful week for the Loonie. The Canadian dollar lost two cents to sterling, which had its most exciting week for a while.  The pound started on the back foot and went into a rapid retreat on Tuesday following a string of negative Brexit stories.  Its fortunes changed the following day when another set of Brexit stories came out, this time all positive.

Canada's dollar barely reacted to the domestic data.  The economy expanded by 0.1% in August, more than forecast, and the manufacturing sector purchasing managers' index was down by a point at 53.9.  Bank of Canada governor Stephen Poloz did his bit to help the currency.  He told the Ottawa Parliament that people should accustom themselves to higher interest rates, suggesting 3% as "the new norm".  That is quite a stretch from the current 1.75% benchmark rate.

AUD weekly currency update

The Australian and NZ dollars both had a good week, strengthening by 2% on average against the other major currencies.  For the Aussie it meant gains of two cents from the US dollar and more than two and a half cent against sterling.  Whilst the headline rate of inflation slowed from 2.1% to 1.9% in the third quarter, most of the Australian economic data were positive the currency. September's balance of trade was particularly helpful, with imports down by 1% and exports up by the same proportion.  

A week of mixed results for sterling saw it fall heavily on Tuesday following some worrying reports about Brexit before rallying strongly the following day on the back of positive Brexit news. That positivity spread to other markets, helping the antipodeans to move into the lead. Yet more help for commodity-oriented currencies came on Thursday night, when the US president claimed to be working on a trade deal with China.

NZD weekly currency update

An increasingly positive attitude among investors helped the NZ and Australian dollars to move ahead of the other major currencies. Both strengthened by an average of 2%, the Kiwi adding two US cents and strengthening by more than three cents against sterling. With no domestic economic data of any significance, the NZ dollar was dependent on external factors for its success. One of those was the gravitational pull of the Aussie, which enjoyed some bumper trade surplus figures, the other was an upswing in investor confidence stemming from, of all the most unlikely places, Brexit.

After a shocking day on Tuesday following a string of negative Brexit stories, the pound forged ahead the following day when that news flow turned positive. Even though most of the good news was later debunked, the upbeat mood settled in, not just for sterling but on a broad front.  It even received a boost on Thursday night when the US president claimed to be working on a trade deal with China.

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