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September 2017

Weekly Currency Insights from Halo Financial

Published: Monday 04 September 2017

What you may have missed and what to look out for…
  • US Dollar slips
  • What next for US monetary policy?
  • Concerns about Euro strength
  • Asian markets feeling the heat from North Korean shocks
  • Brexit negotiations roll on…
By Rachael Kinsella
It’s a public holiday in the USA and Canada today, but there has been plenty of activity in global markets this past week.

US Dollar slips

The US Dollar has fallen in response to North Korea’s bomb, as markets move towards the relative safe havens of the Japanese Yen, Swiss Franc and Gold. Investors are waiting to see if diplomacy prevails…

The US Dollar began to lose momentum towards the end of last week after its recent impressive growth, in anticipation of the US Non-Farm Payrolls data, which is watched eagerly by markets as a key indicator of the health of the US economy. The results fell short of estimates of 180,000 new jobs to be created in America during August, at 156,000. The unemployment rate was also expected to remain unchanged but instead grew from 4.3% to 4.4%. Another key area to keep an eye on, wage growth, also posted disappointing results, with average hourly earnings up by only 0.1% instead of the forecast 0.2%.

US President, Donald Trump, also made his first key speech on tax reforms last week, pledging to simplify tax codes, cut the US business tax burden and cut rates for both businesses and Middle Class Americans, which he claims will support employment and wage growth. As with other speeches about policy matters, there were few details to be gleaned. The speech had little effect on the US Dollar.
What next for US monetary policy?

Markets and investors are all asking the same question regarding US financial policy – will the Federal Reserve increase interest rates further in 2017? While the Federal Reserve suggested they may raise rates again before the year is out, poor inflation could stand in their way. Market experts are currently pricing in less than a 40% chance or a rate hike in December 2017.
Near neighbours Canada have their central bank meeting on Wednesday this week; markets anticipate an interest rate hike could be announced, given Canada’s recent economic strength – potentially this month or next. 
Concerns about Euro strength

The Euro, after enjoying a run of strength and reaching seven-month highs earlier this week, took a hit when a European Central Bank (ECB) insider suggested concerns about the ongoing strength of the single currency. This has led to murmurs that quantitative easing (QE) plans may not be revealed in the September meeting after all… The ECB meets on Thursday – markets anticipate warnings around the strength of the Euro and there may discussions about an interest rate hike in December.

Often seen as a benchmark for the Eurozone economy as a whole, German consumer sentiment is at its lowest in nearly 16 years, and a new report suggests that Germany could be facing a skilled worker shortage. This has not affected the Euro, however, which remains strong against its key currency pairings, the US Dollar and British Pound.

Asian markets feeling the heat from North Korean shocks

North Korea’s earthquake-causing bomb has markets on edge and flowing toward the traditional “safe havens”. Asian and commodities markets are, understandably, feeling the effects. The North Korean missile flying over Japan sent shockwaves across Asian markets at the start of last week, although the Japanese Yen, seen as a relative safe haven alongside the US Dollar, Swiss Franc and Gold, strengthened. At the same time, UK Prime Minister, Theresa May, visited Japan to secure and build bridges with Japanese businesses in the run up to Brexit.

The Reserve Bank of Australia (RBA) is due to meet tomorrow and no changes to monetary policy are expected. The Australian Dollar is likely to continue to trade tightly with its key currency partners.

Brexit negotiations roll on…

And the Brexit negotiations saga continues…Few details of note are coming from the UK’s Brexit negotiations with the EU. Everyone is watching and waiting for useful insights to help plan the way ahead. Once again, Brexit discussions are overshadowing any economic data coming from the UK. Positive manufacturing data was released on Friday, muted construction sector data today, and the closely watched service sector results will be released at 9:30am tomorrow morning. The service sector data may be more likely to have an effect on the Pound, unless more Brexit rhetoric takes over the news tomorrow morning.

Top Five Fake US Public Holidays

1. Doris Day
2. Bad Hair Day
3. Hallmark Card Day
4. Start of Christmas Season Day
5. False Labor Day
For more information, infographics and the latest currency insights, visit www.halofinancial.com/news