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September 2017

Weekly Currency Insights from Halo Financial

Published: Tuesday 12 September 2017

It’s going to be a busy week…
  • Lots of data for the Bank of England to peruse
  • Will Brexit be on the agenda for EU speeches?
  • What next for the US Dollar?
  • Canadian housing market growth speeds up in August
  • Activity aplenty in Asia-Pacific
By Rachael Kinsella
It was a quiet start to the week on Monday, data-wise, although things are far from quiet across the globe right now, with natural and man-made disasters worldwide. And it’s likely to be a turbulent week for the currency markets, too…

Lots of data for the Bank of England to peruse

Consumer Price Inflation data for the UK released today was widely expected to be on the increase and pushing the Bank of England's (BoE) range of one to three percent – the figures came out at the higher end of the scale, at 2.7%. This was an increase on the previous month’s of 2.6% and largely attributed to rising fuel and retail costs. The BoE is also meeting on Thursday 14th, although markets do not expect the BoE to make any policy or rate changes in response to the latest data, however, as they have put it down to extenuating circumstances, skewed by a series of singular events. The employment and wage growth situation in the UK will also be a key area for discussion.

It’s been a more favourable start for the British Pound this week, with a slight boost against the US Dollar and against the Australian and New Zealand Dollars, as they, like the US Dollar, have fallen in response to geo-political events. However, the debate and votes on the Repeal Bill are highly likely to affect Sterling strength in the early hours of Tuesday morning.

Will Brexit be on the agenda for EU speeches?

The Euro has benefitted from strong data to support its economic recovery – as well as the falling USD. Little major EU data is due to be released this week, with a country-specific focus for announcements, although European Central Bank (ECB) representatives and senior EU policymakers are scheduled to speak. Brexit is likely to be among the questions raised – whether there are any answers is another matter. All eyes were on the European Central Bank last week to see what would happen when ECB President, Mario Draghi, announced the latest monetary policy meeting minutes and held a news conference. Interest rates and monetary stimulus measures remain the same, but the Gross Domestic Product (GDP) and inflation forecasts were updated, with the GDP estimate rising to 2.2 percent and expected inflation figure cut for the next two years. Once again, a decision on the future of the Eurozone’s quantitative easing (QE) programme has been delayed, likely to be announced in October.
What next for the US Dollar?

The US is waiting with anticipation for some key economic releases this week, including producer price and consumer price inflation, manufacturing and industrial production figures, which are all important indicators for the state of the US economy. These results have the potential to move the US Dollar, and combined with the terrible storms that have hit Florida and the Caribbean, we are likely to see some continued volatility for the US currency. Markets are torn as to whether the current USD weakness is a short term issue or could continue, given relatively poor economic growth and now pressures from the significant storm damage, the US Dollar could be on the back foot for a while. It’s now looking increasingly unlikely that the Federal Reserve will raise interest rates again or change their monetary stimulus policy before the end of 2017.

Canadian housing market growth speeds up in August

Across the border in Canada, Canadian housing market data showed an unexpected increase in momentum for August compared with the previous month, pointing to better than expected growth for the Canadian economy in the third quarter of 2017. Construction activity and demand for new homes are high, along with a robust labour market and the strongest consumer confidence levels reported for ten years, so the Canadian Dollar has been enjoying a good run. In its second shock move of the year, Canada’s central bank, Bank of Canada (BoC), surprised markets last week by raising its interest rates to 1%, boosting the Canadian Dollar to almost year-long highs against its US counterpart. Given its current economic and currency strength, Canada is unlikely to raise rates again in 2017.

Activity aplenty in Asia-Pacific

Australia, New Zealand and China are also expecting important retail, consumer and business confidence data this week; all closely intertwined when it comes to the data’s effects on their currencies. Australia and New Zealand are both closely tied to economic activity in China, given their key trading relationships, so there could be some volatility ahead here.

Last week saw the Australian central bank, the Reserve Bank of Australia (RBA), keep their interest rates the same, at a level still supporting investors and the Australian Dollar. However, while having fallen a little recently in response to other global economic events, the continually strong Australian Dollar remains a concern for Australian exports.

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