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All eyes on geopolitics as we end the week – what next?

Published: Friday 13 April 2018

  • Sterling strongest against Euro for nearly a year
  • Trade fears and trade deficit for China
  • European Central Bank also worried about trade issues
Global concerns turn to political activity as well as economic results this week, as we await further developments from the US, China, Syria and Russia.

Sterling strongest against Euro for nearly a year
Today we saw further strength for Sterling, as it rose to the best levels against the Euro in 11 months, despite a lack of meaningful UK economic data being released towards the end of the week. Markets will be quick to act on these results, so we may see Sterling slip down a little over the weekend as the dust settles. This bonus boost for Sterling comes at a time when domestic economic data has provided mixed fortunes for the Pound.
Trade fears and trade deficit for China
Chinese trade has fallen into deficit for the first time in a year, with a 2.7% drop in exports in March 2018 and a rise in imports of 14.4%. This disappointing economic performance has weakened the currencies of the countries that have close trade links to China, but so far, the New Zealand and Australian Dollars have not been too severely affected. Meanwhile, Chinese inflation growth has slowed slightly.

European Central Bank also worried about trade issues

The Euro has weakened against the Pound after the European Central Bank’s (ECB) announcement focused on the Eurozone’s trade war fears. This comes in spite of the Euro strengthening in the run up to the ECB’s monetary policy meeting minutes. Could this help or hinder Brexit negotiations?
Markets are still questioning if the ECB’s quantitative easing (QE) and monetary stimulus programmes will continue or end when the central bank has predicted. The Euro remains stronger against the US Dollar, however, as the USD faces its own unique set of problems.

Federal Open Market Committee votes on US interest rates

The March Minutes from the Federal Open Market Committee (FOMC) chronicled that nearly all Committee members wanted an interest rate hike, with only a small few suggesting it would be more prudent to wait a little longer. The Committee is in consensus that inflation will continue to rise in the next few months, as worries about US economic performance die down. This more aggressive outlook from the Committee failed to boost the US Dollar in the usual way, however, as markets were made nervous by Trump and rising political and trade tensions across the globe. Markets are understandably disturbed by the ongoing tensions and are starting to price in political acceleration. 
AUD Dollars on the Halo Financial website

More disappointment for the Australian Dollar 
This week has seen lacklustre results from the Australian Consumer Sentiment Index, falling business confidence, slowing home loans figures and lower consumer inflation expectations, all helping the Pound to strengthen against the Australian Dollar. Aussie interest rates have once again remained the same, although for the first time, the RBA’s governor did talk about the potential economic shocks that could come in the event of raising interest rates after such a long time. 
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