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A week of market madness?

Published: Tuesday 06 March 2018

Your weekly currency update – what you may have missed and what to look out for…
  • US President sends ripples across world markets
  • The Euro’s rise and fall
  • Sterling’s fortunes remain bound to Brexit negotiations
After a week of politically driven market uncertainty, this week may see a change of pace with the release of Purchasing Managers’ Indices (PMIs) for the UK, Europe and USA, but it is clear that politics continues to dominate market sentiment and is causing considerable currency volatility.
The White House, Washington, D.C.

US President sends ripples across world markets

Events in the US, both political and economic, seem to be having the greatest effect on currency market movements. US President Trump’s Trade Wars, imposing a 25 percent imports duty on steel and 10 percent duty on aluminium, have sent ripple effects across global stock markets and currency markets, with significant implications for the economies and currencies of Canada, the UK, the EU, and China.

The trade tariff announcement, alongside positive manufacturing data for the US, kept the US Dollar strong against its major currency pairings, as Sterling was shaken by further Brexit discussions and the Euro approached the outcomes of the Italian election with caution. The Pound has since strengthened a little, as markets consider the Italian political considerations and potential implications for the Eurozone begin to weigh on the Euro.

Trump’s trade tirade follows the new Chairman of the Federal Reserve, Jerome Powell, addressing the US House Financial Services Committee on the need for additional gradual interest rate hikes and a stronger outlook for the US economy, as markets price in three increases in US interest rates over the year. Key economic data for the US is due to be released this afternoon, so the US Dollar could weaken on these results. In the meantime the ripple effects have been felt across key currencies:

Canadian Dollar

Canada’s economic growth has improved recently, but both the Canadian economy and its currency could be hit hard by Trump’s trade tariffs, in its exporting reliance on the US (more than 70 percent of Canadian exports are to the US). With this front of mind, just the announcement about these trade challenges has caused the Canadian Dollar to fall, with the British Pound rising against its Canadian counterpart.

Japanese Yen

Considered a relative safe haven currency in times of political and economic uncertainty, the Japanese Yen is also likely to be shaped by current events in America, although markets are calming down after the initial jerk reaction flight to the Yen, and so the current US Dollar strength may be short-lived…

New Zealand Dollar

Elsewhere in Asia Pacific, the New Zealand Dollar strengthened on the back of a better trade balance result, but is likely to be affected by US trade activity in its capacity as a commodity currency, so it’s one to watch…

Australian Dollar

In Australia, all eyes turned to the Reserve Bank of Australia (RBA) monetary policy announcement overnight, which gave a clear sense of direction for the Australian economy in the sentiment that there were no plans to raise interest rates anytime soon. The Australian Dollar, which had risen somewhat in the run up to the central bank’s announcement, fell following the speech. Once again, recent positive data releases have failed to lift the Australian Dollar, echoing the path of its currency partners across the globe and taking a back seat behind politics.
European Union flag

The Euro’s rise and fall

Considerable economic data released from the Eurozone led to volatility for the single currency, as the Euro’s strength against the Dollar was reversed by disappointing German inflation data, knocking the Euro to nearly month-long lows last week. Investor confidence in the Eurozone has fallen for March; and that’s not the only concern for Germany’s economy and the Euro right now. Car manufacturers in Germany are fearful of a US-Europe trade war – not surprising, as the US is one of the world’s biggest German automotive importers, second only to China.

And the final outcomes of the Italian election are still far from clear – world markets are understandably nervous about how the process of appointing a party and the final result will affect the Euro, as anti-EU sentiment continues. Euro buyers and sellers, both businesses and individuals, should keep a close eye on events and ensure Euro volatility is factored into any international payment plans.

Sterling’s fortunes remain bound to Brexit negotiations

The Pound remains vulnerable as the Brexit debate rolls on. This, alongside the effects of events in the US, has taken its toll on the British Pound recently, although it is starting to strengthen as the tide begins to turn for its major currency pairings, the US Dollar and Euro. Despite regular reports of fairly positive economic data coming from the UK service sector, manufacturing and industry, it doesn’t take much more than a hint of Brexit negativity to take its toll on Sterling strength in the current uncertain climate.

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