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July 2017

Weekly Currency Insights from Halo Financial

Published: Tuesday 15 August 2017

What to watch out for this week…
  • European Central Bank to discuss economic stimulus strategy
  • US political and economic nervousness continues…
  • Could Australian unemployment be on the rise?
By Rachael Kinsella
European Central Bank to discuss economic stimulus strategy

Markets will be listening and watching carefully for Mario Draghi’s announcements at 1.30pm today, as he is due to speak following the last European Central Bank’s (ECB) Monetary Policy Committee meeting before the summer break. All eyes will be looking out for any hints or announcements about winding up the quantitative easing programme – to some extent, at least, or any other key policy changes, such as raising interest rates. Talk of slowing down the Eurozone’s economic stimulus has pervaded market rumours in recent weeks and has provided some positivity, but as yet, we do not know to what extent changes will be made. Some market experts think they will postpone any decision until the autumn. While the Eurozone economy is improving and heading in the right direction, there have been concerns about Euro strength and what this means for the economy, so today’s press conference is hotly anticipated and will be watched and digested keenly.

US political and economic nervousness continues…

Markets seem nervous across the globe right now. The US Dollar, like its Canadian, Australian and New Zealand counterparts, is closely linked to commodities; a fall in energy prices, coupled with ongoing US political concerns, is taking its toll. With questions about Trump’s Administration, their ability to implement policies and a continued question mark around Russian involvement in the presidential election, the US Dollar remains weak against its major currency pairings, as political and economic uncertainty continues. When US Federal Reserve Chair, Janet Yellen, addressed Congress last week and discussed interest rate rises, the US Dollar weakened once more.

Economic data for the US, in contrast, remains encouraging: US Building Permits figures were above forecasts of 1.20 million, coming out at 1.25 million. This helped the US Dollar slightly against Sterling, which fell 0.3 percent in response, since bobbing back up to the 1.29-1.31 level that the Pound has been comfortable at recently.

Could Australian unemployment be on the rise?

Australian Employment data in Australia is likely to show a small increase in unemployment, judging by previous month’s figures. This has the power to weaken the usually strong Australian Dollar, which had recently strengthened following the minutes from the Reserve Bank of Australia (RBA) meeting.
What you may have missed last week…

Ups and downs becoming the norm for the Pound

Sterling had a poor start to the week, then enjoyed a boost following Bank of England hints that the UK’s central bank may conclude its quantitative easing programme earlier than anticipated. However, with Brexit negotiations and the Repeal Bill looming over the UK currency, the Pound was not able to strengthen as much as it perhaps could have without the unique circumstances of Brexit shaping market sentiment.

UK inflation the talk of the town…

The UK inflation drop – which came just a month after the highest spike for four years – caught markets off guard and was the major news topic for the UK so far this week. The fall was in part due to falling fuel prices and has eased the squeeze on the consumer somewhat, as well as providing a reason for the Bank of England to keep interest rates the same for the foreseeable. Sterling faltered against the Euro a little on the news, but remains strong against the US Dollar, which has its own set of troubles... UK Retail Sales data was positive, as expected – the warmer weather provided a boost to take overall volume up 1.5%, in stark contrast to the 1.4% drop in the previous figures, so this should help support the Pound.

Canadian manufacturing data beats expectations

The latest Canadian Manufacturing Sales data was above the forecast at 1.1 percent month-on-month. This was welcome news following a surprise move by the Bank Poof Canada last week to raise interest rates. While the base rate is still low, at 0.75 percent, this provides some competitive advantage for Canada and strengthened the Canadian Dollar against Sterling, only to see fortunes reversed in light of other economic developments.

South African Rand’s rise and fall

The South African Rand rose initially in anticipation of the interest rate announcement, and then fell against the US Dollar in particular in the run up to the release of the latest Consumer Price Inflation figures.  The South African central bank is widely expected to leave interest rates at 7% today, but slowing growth and a strong exchange rate could give them pause.

Japan continues economic stimulus

Japan’s central bank announced that they plan to continue with their economic stimulus programme, as they struggle to increase inflation. The latest policy meeting announcement from the Bank of Japan stated that they were lowering inflation forecasts for the coming years, anticipating that they will not hit their two percent target until 2020.
Growth in China provides boost for global importers

Chinese growth figures sent ripples across global markets – increasing European share prices and providing a boost for importers of raw materials – Australia, Canada, New Zealand and South Africa all benefitted.

Inflation fall for New Zealand

New Zealand, Like the UK, received news of lower than expected inflation, which weakened the NZ Dollar, considerably below predictions. The NZ Dollar weakened on the news. It will be interesting to see what interest rate decision is made by the Reserve Bank of New Zealand (RBNZ).

Watch the carpet! And where did I leave my hairdryer?

A recent survey by Churchill Insurance showed that the most claimed-for item on household insurance is a damaged carpet, which I have to say I was not expecting. Mobile phones came in second, understandably, with jewellery another surprise ranking, in only fifth place. Smaller electrical items, computers and…hairdryers (!) made up the top five. Are we all being a bit more careful when out and about these days, then – and letting loose and spilling vino on the carpet at home? More bizarrely, do people really carry hairdryers around with them? My bag’s too heavy as it is…
For more information, infographics and the latest currency insights, visit www.halofinancial.com/news