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Approach with caution

USD

Once again it was investors' disenchantment with the EUR and GBP that led them to favour the currencies least involved, economically and politically, with Europe. The USD was one of the beneficiaries and it shared first place for the day with the Australian and NZ dollars. All three strengthened against the EUR. Investors were not particularly driven by the quotidian economic details, and the slower-than-forecast 5.5% annual increase in the Case-Shiller index of metropolitan US house prices was of little interest to them.  They will have been motivated, however, by the stark contrast between the pace of growth in the United States and that of Europe.

EUR

The provisional data from Eurostat showed the euro zone's gross domestic product expanding by 0.2% in the second quarter of 2018. Over the same three months the US economy grew by more than four times that much. Growth in Italy, the epicentre of a looming debt crisis, slowed to a standstill. Released alongside the GDP data, the European Commission's five monthly measures of personal and corporate conference were all either lower on the month or unchanged. Together the data reminded investors that Europe is struggling, not just politically but economically.  

CAD

The Canadian dollar narrowly failed to keep pace with the day's leaders. Oil prices were roughly steady and domestic economic data were lacking. The CAD did benefit, however, from an appearance by Bank of Canada governor Stephen Poloz. Speaking to parliamentarians in Ottawa he said Canadians should accustom themselves to the idea of rising interest rates. Mr Poloz described 3% as the "new norm", a loaded comment given that the BoC's current benchmark rate has only recently risen to 1.75%.

GBP

A litany of negative comment weighed on the GBP, making it the weakest performer among the major currencies. The Institute for Fiscal Studies, an independent UK economic research organisation, criticized the government's 2019 Budget as "a bit of a gamble" for its reliance on a Brexit deal that has yet to be struck. A survey by Lloyds Bank found business confidence falling to its lowest level this year. Standard & Poor's said the risk of a no-deal Brexit is now serious enough to affect Britain's credit rating. Meanwhile there was no word from Downing Street about the progress of negotiations with the EU, leaving investors to fear that there had been none.

JPY 

The JPY was off the pace, only narrowly avoiding sharing last place with the GBP. Disappointing monthly and annual falls in industrial production, announced overnight, did not improve its position. Nor did the Bank of Japan's monetary policy statement. The BoJ kept policy unchanged, ruling out a near-term interest rate hike. It also cut its inflation forecasts.  Governor Kuroda San followed up with an observation that external risks could mean further rate cuts or increased asset-buying.  

USD shares the lead as investors continue to treat Europe with caution

USD shares the lead as investors continue to treat Europe with caution

EUR hurt by disappointing growth and confidence data

EUR hurt by disappointing growth and confidence data

CAD among the leaders after BoC governor talks up interest rates

CAD among the leaders after BoC governor talks up interest rates

GBP in the rear, hurt by Brexit-related criticism

GBP in the rear, hurt by Brexit-related criticism

JPY lags as BoJ holds out no hope of higher interest rates

JPY lags as BoJ holds out no hope of higher interest rates

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