Looking on the bright side

3 minute read


On Friday investors did not like the USD, the CHF and the AUD in equal measure. All three lost an average of 0.2% to the other eight most actively-traded currencies. They probably did not think much of the 3.4% fall in existing home sales but the statistic is not one to attract more than a cursory glance. They might, however, have had pause for thought when Dallas Federal Reserve president Robert Kaplan suggested that another two or three quarter-percentage-point increases will put the funds rate in "neutral" territory. At the current pace of delivery that would mean an end to tightening in March or June next year, somewhat sooner than the bulls would like. The USD lost a net 0.6% to the EUR.


Investors certainly took no notice of the euro zone data. The only figures were for August's current account, a statistic to which they are usually supremely indifferent. (For the record it was a seasonally-adjusted €23.9m.)  Intriguingly, investors seemed to be less concerned about Italy on Friday and this morning. Despite a war of words regarding Italy's budget deficit, the EU economic affairs commissioner, Pierre Moscovici , said he was looking for answers to questions, not crisis in the relationship between Brussels and Rome. Even a downgraded - to Baa3 - of Italy's credit rating by Moody's did not frighten the horses. Investors had been half-expecting a more swingeing cut which would have demoted Italy to the category of "junk".


The USD's 0.2% gain over the CAD was less than might have been expected from the disappointing set of data released by Canada on Friday. Retail sales fell by 0.1% overall in August; 0.4% excluding autos. Headline inflation slowed from 2.8% to 2.2% and the Bank of Canada's "core" measure was down from 1.7% to 1.5". All the numbers were below forecast and lower on the month, raising a degree of concern that the BoC might not proceed with the rate increase that is pencilled in for Wednesday. The CAD dropped three quarters of a cent on the news, recovering only some of the lost ground later in the day.


Much as the EUR ignored theoretically bad news about Italy, the GBP did equally well on Friday in the face of a steady stream of dispiriting Brexit news. Nothing new actually went wrong, but anyone who had a bad word to say about the prime minister went ahead and said it. To say British politics is in a bit of a mess would be an egregious understatement. Yet, for some reason, investors retain a Micawber-esque  faith that "something will turn up". They refuse to believe that Britain's parliament will allow the country to be sold down the economic river in the name of an ideological crusade. So they were broadly supportive of the GBP on Friday - though less so this morning in London. The GBP is unchanged against the USD.


The USD strengthened by 0.4% against the JPY, which was the weakest among the major currencies over the weekend. To a large extent it was a function of investors drifting away from the safe-havens, though the CHF fell only half as far. Only one statistic shed any light on the Japanese economy: the All Industry Activity Index, which aims to measure the change in output by all industrial sectors. It was up by a monthly 0.5%.

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