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January 2017

Weekly Currency Insights from Halo Financial

Published: Monday 30 January 2017

What you may have missed last week… and your latest currency updates.
  • UK headlines all about May’s visit to US, Brexit, and UK economy
  • Sterling strengthens against its major currency peers
  • US economic data disappointing – US Dollar suffers “the Trump effect”
  • New Zealand Dollar enjoys boost following strong data
  • Negotiations of a different kind in Europe… 
The end of last week was all about the visit of the UK Prime Minister, Theresa May, to the US, to meet the new president. The Pound fared well at the end of the week, following much better than expected economic growth figures for Q4 – with the 0.6 percent growth figure showing that the UK economy is 8.7 percent bigger than it was before the economic crisis. Data from the British Banking Association (BBA) also showed that approvals for mortgages were at nine-month highs in December 2017, providing a welcome boost for the Pound.

GBP-USD is back past the 1.26 interbank level, also experiencing new highs last week of 1.1785 against the Euro. Sterling also strengthened against the Australian Dollar, at 1 percent.
 
Theresa May has promised a whitepaper on the Brexit approach – this could provide some welcome clarity and may have an effect on currency markets when it’s released.

Will this week be one of good news for global economies?
 
A belated Happy Chinese New Year – New Year Goodness to all!

Good news for the New Zealand Dollar

 

In news from Asia Pacific, impressive trade data for New Zealand boosted the NZ Dollar half a cent against Sterling. The better than expected data showed that he trade deficit was less than half what was predicted. This, along with New Zealand’s Employment data coming up, which is also expected to be strong, could further strengthen the NZ Dollar against its currency partners.
 
This follows strong NZ Consumer Price Index (CPI) data from last week, which helped to strengthen the NZD against most other currencies. There was also an improvement in government bond yields, so interest rate increases from the Reserve Bank of New Zealand (RBNZ) are certainly looking to be on the cards. In fact, markets are pricing in at least one interest rate increase in 2017. 
 
In Australia, markets await trade figures, which are expected to show an increased trade surplus in December. November 2016 saw Australia’s first trade surplus posted since 2014; the figure for December 2016 is anticipated to improve further on this and could strengthen the Aussie Dollar in the run up to the data release, planned for early Thursday morning (GMT).
 
Australian Consumer Price Index (CPI) figures were up 0.5% in the last quarter of 2016; lower than expected. The Reserve Bank of Australia is now unlikely to raise the base interest rate this year unless there is a significant change to the economy.

And news from the Australian Open was a pleasant surprise – two 35 year olds taking the trophies was an impressive result!


Brexit, Brexit, Brexit – and a barrage of data from the UK and US this week
 
An abundance of UK data and the usual Brexit debate…

 


At a roundtable event on Brexit that I attended as the dust settled on the referendum vote, the general consensus among a respected group of business people, economic and political commentators, was that “politicians will do what politicians do, but business will find a way.” The performance of the UK economy seems to reflect this thinking, judging by the latest UK Gross Domestic Product (GDP) figures. While I expect that the Bank of England’s (BoE) Monetary Policy Committee will keep the base interest rate as it is for the foreseeable future, the strength of the UK economy may give an indication to the BoE as to when to put rates up. This will also be considered in parallel to returning inflation; which is being driven as commodity prices and demand move upward.
 
Markets will be keeping a close eye on the forthcoming data to come from the Purchasing Managers Indices (PMI), as well as the media headlines, which will influence sentiment. Expectations are for positive results for both UK Employment and Manufacturing data, based on last month’s impressive figures. Yet, what comes out of the BoE’s Meeting Minutes will be more of an influence on markets, and this will all pale in comparison to the MP debate on triggering Article 50 and finally beginning Brexit negotiations.
 

Federal Reserve to speak on interest rate policy

We wait for the US Federal Reserve to provide an indication of any interest rate rise and when this might be. We doubt there will be any news on this in the next few days, but an interest rate increase or two could be on the cards throughout 2017, as the US Dollar is currently affected by the increasing price of commodities and the US Dollars major currency pairs enjoying strength of their own. In addition to the latest results for US data from the Manufacturing and Service Sectors, markets could also be affected, of course, by any new policies and rhetoric from the new presidency.

 
US trade

Speaking of the new US Administration, the new president has decided to remove the US from the Trans-Pacific Partnership (TPP). This seems to pose opportunities for other countries involved in the agreement. Australia and New Zealand are committed to the free trade area that has been proposed – China has even expressed interest in joining. With Trump also considering the US leaving the North American Free Trade Agreement (NAFTA), this could benefit Canadian exports.

 
Negotiations of a different kind in Europe… 

The Euro has enjoyed a welcome boost as the US Dollar has fallen. The focus in Europe has shifted back to the ongoing debt negotiations between the European Union (EU) and Greece last week. There was also news of the European Commission working alongside the European Central Bank (ECB) to produce a new Euro-bond, ‘European Safe Bond’. Currently only at the whitepaper stage, the proposal is likely to face opposition from a number of EU members.
 
Weekly Currency Insight by David Johnson