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November 2017

Weekly Currency Insights from Halo Financial

Published: Monday 06 November 2017

What you may have missed…
  • Interest rates rise in UK for first time since economic crisis
  • UK economic performance surprises
  • European economic data above expectations
  • USD weathers data volley and new Federal Reserve Chair
By Rachael Kinsella
 
 
Well, it was an eventful week for the currency markets! Myriad central bank announcements and economic data releases meant movement for the Pound and all its key currency pairings.

Interest rates rise in UK for first time since economic crisis

The big news in the UK, other than Brexit (for once!) was the Bank of England (BoE) raising interest rates for the first time in ten years. However, while the anticipation of interest going up buoyed the Pound initially, the dovish stance from the Bank of England in their forecasts for the next three years meant it dropped dramatically against both the Euro and US Dollar. This was because Mark Carney expects two further, small rate rises over the next three years, raining on traders’ parades.

UK economic performance surprises

The more positive economic data coming from the UK was overshadowed somewhat by the central bank activity, but the UK manufacturing and services sectors experienced better than expected growth over the past month. Even the construction sector, while still under significant pressure, demonstrated improvement on the previous month’s poor performance.

European economic data above expectations

Eurozone economic data continues to show growth – at a slower pace than before – and beat forecasts, with Germany and France, the Eurozone’s key economies, performing solidly. Yet the Euro remains vulnerable against its major currency partner, the US Dollar.

The Catalonia crisis has had a noticeable effect on Spain’s services sector, which was at its lowest level for nine months. Rising energy prices and intermediate goods costs have added to the inflationary pressures on businesses across the bloc and, unlike the BoE, the European Central Bank (ECB) appears happy to weather exceptionally low interest rates for an extended period.

USD weathers data volley and new Federal Reserve Chair

The US Federal Reserve kept their interest rates unchanged, but there were hints of a rate increase next month in a slightly under-the-radar economic upgrade for the US.

The revelation that Jerome Powell will replace Janet Yellen at the end of her term as Federal Reserve Chairperson failed to ignite markets. Jay Powell is seen as a natural successor to Mrs Yellen. A torrent of economic data followed, including the all-important US Non-Farm Payrolls data, which was in negative territory for the first time in seven years. A record-breaking fall in employment for the hospitality and leisure sector was noted, but unemployment fell overall to 4.2 percent for September, the lowest this figure has been for over 16 years. Most economists would accept that unemployment rates below 4.5% are as near to full employment as is possible in an economy the size of America. Surprisingly, this was not affected by the hurricanes. The US Dollar benefitted from a series of strong results and strengthened against its key currency pairs on the news.

What to look out for this week

 
Volatility ahead for Australian and New Zealand Dollars?

The Australian Dollar is at the mercy of the Australian central bank, the Reserve Bank of Australia’s (RBA), interest rate announcement is due overnight. Those in the financial markets expect the bank to keep rates unchanged once more, but housing market pressures and rising inflation remain concerns for the Australian economy and may mean a rate cut is on the cards at some point. Investors will be listening closely for any hints of future rate cuts and other snippets of monetary policy, which could have the potential to move the Australian Dollar. This will be followed by Australian home loans data, also eagerly anticipated.

Elsewhere in the Antipodes, we await the official interest rate decision for New Zealand from the Reserve Bank of New Zealand (RBNZ). No change is expected there, but both the Australian and New Zealand Dollars have the potential to be affected by the latest economic figures from China; the Chinese Trade Balance data follows on 8th November.

More key data from Germany…

We also expect industrial production figures from Germany on Tuesday 7th November, which are important for both the overall Eurozone economic outlook and the Euro.

UK data expected later this week

We’ll get the latest UK GDPR figures this week, along with the housing market data in the form of the Royal Institution of Chartered Surveyors (RICS) House Price Balance figures, along with industrial output, manufacturing and construction output figures, which should all be illuminating on the direction of both the UK economy and the Pound.

#MondayMotivation

“Little by little one walks far.”
Peruvian Proverb

“What it lies in our power to do, it lies in our power not to do”.
Aristotle

“Give me where to stand and I will move the earth”.
Archimedes