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November 2017

Weekly Currency Insights from Halo Financial

Published: Monday 27 November 2017

What you may have missed this week...
  • Sterling stands its ground then bends to Brexit uncertainty
  • Euro has its fair share of ups and downs
  • German economy key to Euro’s success
  • Canadian retail sales sag
By Rachael Kinsella
 
 
Well, that was a busy week for the UK in particular, while the US enjoyed the Thanksgiving break. The German election outcomes, business confidence surveys and monetary policy decisions are also keeping both the Eurozone and Euro busy. Meanwhile, over in the Antipodes, economic data wasn’t all it was cracked up to be.

Let’s take a closer look and what went on last week and what to look out for as this week unfolds…

Sterling stands its ground then bends to Brexit uncertainty

Sterling started the week steady in anticipation of the UK Budget on Wednesday 22nd November, awaiting the key announcements for economic policy and a clear view of the way ahead for the UK’s economy.

Comments from UK Chancellor of the Exchequer, Philip Hammond, to the UK Prime Minister, Theresa May, to progress with a divorce bill decision for Brexit had also edged the Pound up slightly towards the end of the previous week.

The Pound also enjoyed a brief boost against the US Dollar, as the US faced its own uncertainties around tax reforms and Federal policy.

Sterling remained on relatively good form post-Budget, in anticipation of the UK’s Gross Domestic Product (GDP) figures, although, despite these figures coming in broadly in line with expectations at 1.5% annually, and in spite of positive retail data from the latest report from the Confederation of British Industry (CBI), the Pound took a hit from falling business investment and lower business confidence, as Brexit uncertainty continues to bite. 
 
Euro has its fair share of ups and downs

The Euro has had an interesting ride this week, too. It started the week as the weakest key currency in the markets, as it struggled against the uncertainty of Germany’s political developments and muted comments from the president of the European Central Bank (ECB), Mario Draghi, as he pointed out the need for improvements in labour markets and wage growth, as well as counselling patience on European monetary policy.

After the latest ECB policy minutes failed to boost the single currency, the Euro received a welcome leg up from sound Purchasing Managers Indices (PMI) results.

German economy key to Euro’s success

The influential ifo Business Climate Index from Germany was forecast to show lower business confidence and instead posted a record high, with much more positive expectations from businesses, forecasting an economic boom for Germany. This has supported the Euro; and combined with a positive outcome in German Chancellor Angela Merkel’s political support to form a coalition, the Euro is enjoying a resurgence.
 
Canadian retail sales sag

Despite positive forecasts of 0.9% growth, which boosted the Canadian Dollar in advance of the data release, the Canadian retail sales results were considerably lower than expected, at 0.1%, weighing on the usually robust Canadian currency. However, the effects were not too severe, as this came at a time when one of the Canadian Dollar’s key currency partners, the US Dollar, was struggling against other North American political and economic forces. Cutting crude oil going to the US from Canada also served to weaken the already beleaguered US Dollar.

US Dollar vulnerable to economic and political change
 
The US Dollar began the week weak, as uncertainty prevailed around economic performance, future Federal Reserve policy, and tax reforms. Current Federal Reserve Chair, Janet Yellen, suggested that US inflation would go up to 2.0%. Uncertainty remains as to whether President Trump will use the changeover of Federal Reserve Chair and its Board members to make his own changes to US monetary policy.
 
The Thanksgiving break meant that the US currency was also at the mercy of economic and political influences from elsewhere around the globe, such as the strengthening Euro.
 
New Zealand Dollar economic results slide

New Zealand’s retail sales fell significantly over the third quarter of 2017 and results fell even shorter than the already pessimistic forecast of 0.4%, coming in at only 0.2%. This is in stark contrast to the 1.8% growth figure seen for the second quarter of the year.

Australia keeps interest rates at current lows

Nearby, the November Minutes from the Reserve Bank of Australia (RBA) suggested that Australian interest rates could stay at the current record lows for some time to come and even longer than initially anticipated, as uncertainty around real wage growth and the consumer squeeze prevails. 

What to look out for this week

 
Euro making big news for currency markets

The big political developments in Germany will remain the centre of attention for currency markets. German Chancellor, Angela Merkel, has received support to create a “grand coalition” and this has boosted the Euro against its major currency pairings, the US Dollar and Euro.
 
Brexit negotiations circle round and round, dampening the Pound…

Brexit negotiations seem to be going round in circles. Now the chicken and egg question about the Irish Border decision and trade agreements with the EU has come back into focus. The ongoing uncertainty will continue to weigh on the Pound.

At 2.30pm today, the Bank of England (BoE’s) Andy Haldane will speak at a Birmingham school about the Bank’s educational and communications strategy, as he visits the West Midlands. This is unlikely to have any effect on the Pound, but may open a brief window into the central bank’s broader strategy and the implications for the UK economy.

Clues to US monetary policy?

Also today, in addition to US New Home Sales data, Federal Open Market Committee (FOMC) Member, Neel Kashkari, is due to speak in the US this evening (UK time). His speeches are watched closely for the inevitable hints at future US economic and monetary policy.

A busy week begins…

The calendar for economic announcements gets busier as the week goes on, with inflation figures a key focus for the Eurozone and USA, in particular. The Manufacturing PMI will also be released for the UK and Eurozone at the end of the week, both potentially offering additional support for the Pound and Euro respectively.
#MONDAYMOTIVATION 

“The future depends on what you do today.” – Mahatma Gandhi

“People will forget what you said. People will forget what you did, but they will never forget how you made them feel.” – Maya Angelou

“When you talk, you are only repeating what you already know. But if you listen, you may learn something new.” – Dalai Lama

“Only put off until tomorrow what you are willing to die having left undone.” – Pablo Picasso