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March 2017

Weekly Currency Insights from Halo Financial

Published: Tuesday 21 March 2017

What you may have missed last week – and what to watch out for this week…
  • ​​UK awaits Article 50 on 29th March
  • UK inflation up to 2013 levels
  • Australian Dollar feeling the brunt of housing market heat
  • One to watch: New Zealand Dollar likely to strengthen
By Rachael Kinsella
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The big news this week is the UK’s official announcement of the invoking of Article 50 on 29th March; and the French presidential election. Both key political developments have the potential to have a dramatic effect on their respective country’s economies, and in turn, affect Sterling and the Euro.

UK awaits Article 50 on 29th March
Sterling is currently strong against its major currency trading partners, despite the Article 50 announcement: this seems to follow the recent pattern of announcements (perhaps seen as some ammunition against uncertainty?) helping the currency to rally, while sound economic data has not been able to do the same for their home currencies.

UK inflation up to 2013 levels
The UK inflation data released today was eagerly anticipated, rising to the highest rate for three and a half years at 2.3 percent for February 2017. This is mostly thanks to the increasing cost of food and fuel, nudged upwards by a weak Pound at the start of the year. Oil is priced in US Dollars, so the poor GBP-USD rate has taken its toll. The price of food has gone up for the first time for almost three years, too, 0.3 percent higher year-on-year. Despite this, Sterling has strengthened against both the US Dollar and the Euro in the past few days.

French presidential election – the candidates
On Monday, 20th March, the lead candidates in the French presidential election hold their first live debate. The performance of the candidates, listed in order of current voting popularity, are listed below
  • Marine Le Pen, Front National – far-right.
    Described beautifully by the Guardian as “shouty and angry”. Showed no real signs of understanding the economy.
     
  • Emmanuel Macron, En Marche movement – centrist
    Can’t fault the enthusiasm.
     
  • Francois Fillon, Les Républicains – opposition right.
    A muted performance but strong in some key areas, such as foreign policy and pensions.
     
  • Benoît Hamon, Socialist party (PS)
    Overshadowed by Mélenchon?

     
  • Jean-Luc Mélenchon, La France Insoumise (Unbowed France) – hard-left
    Could well have edged beyond his closest competitor, Hamon.

     
Europe in a state of flux
There will be more data for Europe this week, too. The Euro has risen against the US Dollar as markets await the latest Purchasing Managers’ Indices (PMI), along with French Gross Domestic Product (GDP) figures, coming out against the backdrop of a closely fought French presidential election. The big threat to the Euro is Marine Le Pen, whose policies include France leaving the EU and the single currency. This is a big concern for Germany, who have already voiced their concerns about the UK’s exit from the European Union, and would leave another gap to fill.

Australian Dollar feeling the brunt of housing market heat
The Aussie Dollar strengthened to a high last seen in December 2016, but failed to gather pace, as continually strong housing data results were released by the Reserve Bank of Australia (RBA). The Australian central bank raised concerns in their latest minutes about the risks posed by the country’s ever-strengthening property market.

One to watch: New Zealand Dollar likely to strengthen
Also this week, New Zealand and Canada are expecting a raft of economic data. The Reserve Bank of New Zealand (RBNZ) is due to announce its interest rate decision on Wednesday, 22nd March, widely anticipated to remain unchanged. However, whatever is announced, along with the style and tone of the central bank’s announcement, will have an impact on the NZD. This is a key event to keep an eye on, with trade figures following hot in RBNZ’s footsteps on Thursday, 23rd March. The results are predicted to show a trade surplus once more for New Zealand, so if you are planning to buy New Zealand Dollars, you may which to assess your situation and consider purchasing what you need before these key announcements take place.
 
Canada will release its Retail Sales and Inflation data this week, expected to show improvement and therefore provide a boost for the Canadian Dollar. The CAD is also under pressure from recovering commodity prices, which are inextricably.

What you may have missed last week…
  • The US Dollar weakened after uncertainty around interest rates and then strengthened following industrial production data. The US Federal Reserve raised interest rates, as anticipated, stating that the economy is broadly balanced in the current climate. The Federal Reserve Bank of Chicago President, Charles Evans, was quoted as saying that they could potentially raise interest rates another two or even three times in 2017.
   
  • The Euro enjoyed a boost from good economic data, but concerns about the Dutch and French elections are taking their toll on European market sentiment.
 
  • Sterling rose in the run up to the latest UK employment data, having weakened in response to ongoing Brexit discussions and uncertainty about the exact start date of Article 50. The UK is braced for a bumpy ride as Article 50 fires on 29th March and official negotiations begin.
 
  • As Sterling fell, the Australian Dollar rose against it, despite muted business confidence result for Australia. The Australian Dollar weakened after a less than impressive drop in the Aussie Business Confidence Index, from ten to seven, causing the AUD to weaken against all its major partners, except Sterling. Improving Chinese industrial figures prevented the AUD from falling too far.

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