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September 2017

Your weekly currency insights

Published: Thursday 28 September 2017

  • Bold moves from Japan
  • North Korean threat boosts US Dollar
  • US economic indicators come to light this week
  • Euro weakened by unconvincing Merkel win
  • Sterling up, down and all around…
  • More volatility ahead for New Zealand Dollar?
By Rachael Kinsella
 

Bold moves from Japan

The week started light on data, with markets reliant on political and economic speeches... 
 
Surprise news came from Japan, where Prime Minister Shinzo Abe has called an election a year early and plans to dissolve parliament on Thursday...

No set date was given for the election, but Japanese media suggests it will be on 22nd October. Watch this space…
 
Support for Mr Abe has surged recently as tensions with North Korea rise – this situation seems to have overshadowed criticism of alleged cronyism – hence his opportunistic push for an early election.

North Korean threat boosts US Dollar

Further news emerged regarding North Korea as its foreign minister has accused President Trump of declaring war and claimed they had the right to shoot down US bombers. Naturally, the US denied any claims. Alongside all this, the Sterling - US Dollar rate moved from 1.3437 to 1.3560 but that has slipped again as safe haven buying of US Dollars and US treasuries took over.  

The shadow of a North Korean threat has caused global nervousness; markets have turned to the old-faithful “safe haven” of Gold and, ironically, the US Dollar in response. GBP-USD fell lower than $1.34, its peak of $1.3650 and could yet fall further. EUR-USD sat at $1.21 and its highest and is dropping in anticipation of further speeches from Janet Yellen, the Federal Reserve Chair. More key data in the form of the US Durable Goods Orders and Trump’s tax reform speech all have the power to move the US Dollar higher, as it’s already rising steadily in anticipation, so watch out for more volatility for the US Dollar and be prepared!

US economic indicators come to light this week

Janet Yellen’s speeches are already the big news for the US this week. There was initially no indication that she would say anything that could move the markets at her speech at the National Association of Bar Executives (NABE) yesterday, but a few comments have affected the US Dollar, particularly those about inflation. She stated that the Federal Reserve might have over-estimated the strength of US inflation and the labour market. She advocated monetary policy tightening and warned against holding interest rates until the desired 2% inflation level is reached, stating that they should be wary of moving “too gradually”.
 
Following perhaps a stronger approach in her speech than was anticipated, the US Dollar fell initially, and then bounced up to higher than before. I’m sure we saw something similar happen to the Pound last week after Theresa May’s Brexit speech in Florence…?

European Central Tower

 
Which leads us nicely onto events across the Pond…
 
UK Prime Minsister, Theresa May, made a key speech about the way forward with Brexit on 22nd September. While we didn’t receive much that forms a concrete plan, there were some key points covered, namely the rights of EU nationals living in the UK and vice versa, protections for Northern Ireland and a firm “no” to following in the footsteps of the EEA or Canada when it comes to trade agreements. The Pound did not know what to do with itself and bounced slightly, then dipped, then managed to climb back up to much the same level as before. Sterling is now slipping against the US Dollar in light of global concerns about North Korea and subsequent US Dollar strength but has gained against the Euro.
 
Sterling’s boost against the Euro followed strong UK mortgage data and the latest retail figures that suggest consumers are managing despite squeezes to their finances in the current economic climate. The ongoing discussions between Mrs May and EU officials have of course the potential to put paid to this if the EU continues along their current path, refusing to progress negotiations until the UK pays up...  Both sides seem to be willing to play hardball, so watch this space…

Euro weakened by unconvincing Merkel win

In other European news, President Draghi addressed the European Parliament at the start of the week. Standout points included the need for the European Central Bank (ECB) to be sensitive about not halting the recovery and that the downside risks to Eurozone growth are mainly geopolitical. His comments didn’t affect the markets much, with GBP-EUR trading tightly between 1.1350 and 1.1390 throughout the day. The Euro is also facing uncertainty about the German election, so in the absence of any imminent key data, is likely to remain at similar levels – for now…

More volatility ahead for New Zealand Dollar?

On the other side of the globe, we found that New Zealand business confidence fell to a two-year low in September, likely to be a reflection of election uncertainty. The construction industry seems to have endured the worst of the uncertainty in the latest figures.  The Reserve Bank of Australia reveals its latest interest rate tonight, and this is expected to remain unchanged. However, ongoing election uncertainty is likely to mean continued volatility for the New Zealand Dollar. This is an area to keep a close eye on if you want to buy or sell New Zealand Dollars – it’s a good time to plan for any purchase and speak to a currency consultant to see how this could affect you.
 
The recruiter of the future?
 
A recruitment consultant was bemused.
 
He met with a candidate that morning and, after asking several questions, asked the classic recruitment question: “Where do you see yourself in three years’ time?”
 
The candidate replied, “I’m not sure, I don’t have 2020 vision.”


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