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February 2017

Weekly Currency Insights from Halo Financial

Published: Tuesday 28 February 2017

What you may have missed last week – and what to watch out for this week…

The focus today remains firmly on the US, with key data releases and political events that could shape the fortune of the US Dollar and the US economy. It’s been a busy week for both the US and Europe, with a flurry of economic data coming through from all sides.
  • ​​US markets hungry for answers
  • Sterling “one of the world’s most undervalued currencies”
  • Mixed bag for the UK
  • Political uncertainty affecting confidence in Europe
  • No interest rate changes in Australia
  •  Canadian inflation soars
By Rachael Kinsella

US markets hungry for answers
Last week, markets were watching and listening closely for economic indicators from the Federal Open Market Committee (FOMC) minutes. Murmurs from some of the Federal Reserve Members helped the US Dollar to strengthen slightly, as traders began to buy USD again. Investors today were once again watching and waiting for Trump’s speech and any snippets to be gleaned about the future of the US economy.

US Durable Goods Orders data is a key indicator of economic sentiment in the US, and a positive result here usually means good news for the US Dollar. Durable goods orders saw improvement in January 2017, rising 1.8%, in contrast to a drop of 0.8% in December 2016. The greenback strengthened at the end of last week, following positive economic commentary and enjoyed another boost from this key data.

More important economic data for the US is expected this week. Today we will have the second release of US Gross Domestic Product (GDP) growth data, which is also expected to show a positive result. The Beige Book, another important signifier of economic strength in the US, comes on Wednesday, and is also expected to show growing confidence in the regions of the US. If the forecasts can be believed, the US Dollar could strengthen further. Add to this the general view that the US currency is currently undervalued, and that strength could be more substantial than expected.

US economic data has been positive for the past few months, surprisingly strong results were seen in employment, inflation and retails sales data.

“Markets are buoyant and if the tax cuts and fiscal stimulus measures promised by the Trump Administration materialise, the Federal Reserve risks falling behind the curve if they don't bring their interest rate hikes to market sooner rather than later.” comments David Johnson.

Sterling “one of the world’s most undervalued currencies”

Sterling, too, is significantly undervalued, according to industry experts in the UK, who believe that the Pound has the ability to strengthen to pre-referendum figures once Brexit is done and dusted. We agree to a certain extent - read our thoughts on this and what to watch out for when monitoring the performance of the UK currency.

Next week, markets will be watching the UK Budget speech closely for economic indicators and some clarity on post-Brexit Britain. This will be the last Spring Budget, as from 2018, they will move to the autumn, replacing the Autumn Statement. 
Mixed bag for the UK
The UK Consumer Confidence Index dipped marginally in February, but Sterling remained largely unruffled.  Recently, a trend has emerged in the UK where we get negative forecasts but positive data and this one exception appears to have been dismissed. The Pound certainly has an opportunity to gather strength from any positive results, but whether this will happen or not is anyone’s guess in the current, Brexit-obsessed markets.

At the end of last week, we saw this attitude in put into practice, as Confederation of British Industry (CBI) Distributive Trades data yielded confusing results. While retailers were braced for hard times, numbers were actually up on the previous month and sales activity appears to be on the rise. Yet business confidence has taken a hit from rising rates and uncertainty around Brexit. So the overall mood remains gloomy, but Sterling has remained reasonably steady throughout.

Political uncertainty affecting confidence in Europe

In Europe, investors await Industrial and Consumer Confidence indices. Forecasts are for some improvement in the industrial data, but employment in the EU is another story. Disappointing data from either of these releases has the power to further weaken the Euro after a lacklustre few days.

There may be signs of an upcoming resolution in the Greek debt deal, although this has had no noticeable effect on the Euro. Political uncertainty prevails in Europe, as the upcoming elections in France and Holland keep the markets guessing.

No interest rate changes in Australia

Further afield, Philip Lowe, Governor of the Reserve Bank of Australia, put paid to any plans for any additional interest rate cuts, in light of the unlikely chances of inflation increasing. The Aussie Dollar is still overvalued.
Canadian inflation soars

A hike in the price of gasoline, pushing up transport costs was cited as the main reason for a considerable rise in inflation for Canada, taking levels well above forecasts of 1.5-1.75 percent to 2.1 percent. The Canadian Dollar has strengthened in response and the recent improvement in commodity markets will have assisted in that strength as Canada’s exports increase in value.
Light relief

We’ll leave you with our joke highlight of the week – research on Europeans joking about… other Europeans.

For more information, infographics and the latest currency insights, visit www.halofinancial.com/blog