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January

Weekly Currency Insights from Halo Financial

Published: Wednesday 10 January 2018

Your mid-week currency update – what you may have missed and what to watch…
  • Euro drops against key currency partners
  • Sterling strengthens on several pieces of good news
  • US markets 
  • The calm and the storm for Asia Pacific
It’s been a hectic week already for currency markets, with the Pound, Euro and US Dollar all experiencing movement from economic and political influences domestically and from further afield.

By Rachael Kinsella

Euro drops against key currency partners

Factory orders dropped in November for Germany, a key economy for the Eurozone, and this weakened the Euro slightly. The Euro fell against its main currency partners despite all the mostly positive data that came out of the Eurozone; such as EU retail sales going up 1.5% and industrial production rising 3.4% versus a forecast of 1.8%.

Sterling strengthens on several pieces of good news

Meanwhile, the Pound is having a moment of strength, thanks to some good economic news. UK manufacturing performance has once again helped boost the UK economy, with the latest Manufacturing and Production figures coming in above forecasts and providing further positivity for the Pound. The latest National Institute of Economic and Social Research (NIESR) Gross Domestic Product (GDP) growth figures show that the UK economy has grown by 1.8 percent in 2017, with the last quarter of 2017 showing a big improvement and heralding the best growth forecast for a year. Economic growth received a boost in the latter part of 2017 from the manufacturing and service sectors, a weaker Sterling and economic positivity and appetite globally. This bodes well for further economic recovery in 2018.

The construction sector remains the UK industry sector that is struggling the most and lagging behind from a growth perspective. Much of this has been as a result of Brexit uncertainty and wider economic concerns, causing construction companies to put plans and funding on hold, reigning in spending and stalling new projects.

Sterling is still strong against the US Dollar, hovering around 1.35 at the time of writing. However, the Pound is always a small step away from significant volatility in the current climate, as Brexit negotiations continue and the UK government makes big changes. While markets may have found some confidence from the development that the UK Prime Minister, Theresa May, seems to be keeping the status quo when it comes to her most senior ministers, any change to government creates further uncertainty in an economy that already has its fair share of hurdles to overcome. 
 

US markets

Across the Pond, US markets began calmly enough at the start of the week, as investors awaited speeches from a number of Federal Reserve policymakers. Market sentiment in the US is currently positive, which was adding support to the US Dollar and keeping the US currency strong, until news reports from China on Tuesday against buying US Treasuries, which caused a significant US Dollar sell-off that helped the formerly flagging Euro gather ground. A lack of data releases from the EU also helped buoy the Euro. It’s not just the USD exchange rates that have been affected, either – stocks sank and bonds bottomed out as the news broke, in turn boosting commodities, which have been enjoying a pretty good run recently.

The calm and the storm for Asia Pacific

In Asia Pacific, the week started with a public holiday in Japan, so this lull counterbalanced the busy markets in the Antipodes at the end of last week and a whirlwind of activity from China this week. China’s factory inflation dipped to the lowest pace for over two years, sending ripple effects across the many countries that trade with China. China’s announcement that they were cutting back on US Treasury buying meant that the US Dollar fell fast against world currencies, particularly the traditional “safe haven currency” of the Japanese Yen.

The Australian Dollar has had an interesting time of late. Australia’s trade balance went into deficit following disappointing export numbers, defying forecasts and weakening the usually buoyant Australian Dollar. A weaker Australian Dollar would usually encourage exports, so policymakers and markets alike will be monitoring this situation closely. Falling employment Down Under could have knock-on effects on wage price inflation and allay some concerns around interest rates. All eyes will now turn to Australian Retail Sales data, predicted to be lower than November 2017’s figures.

#WednesdayWisdom

“There are many ways of going forward but only one way of standing still”
– Franklin D. Roosevelt, 32nd President of the United States
 
“Dreams and dedication are a powerful combination”
– William Longgood, Pulitzer Prize winner
 
“Love all, trust a few, do wrong to none”
– “All’s Well that Ends Well”, by William Shakespeare

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