Weekly review of FX Markets

06 November 2017

FC Exchange

UK | GBP

GBP – BoE hikes rates and the pound sinks
 
Last week
 
-    GBP/EUR hit a one-month high as Michel Barnier announced that he was prepared to speed up Brexit negotiations.
-    UK factories grew at a faster pace than expected in October, with Markit’s manufacturing purchasing managers’ index (PMI) coming in at 56.3.
-    The Bank of England (BoE) increased interest rates from 0.25% to 0.50% for the first time in almost a decade, but investors anticipate only a couple of further hikes in the years to come.
-    Sterling responded to the interest rate adjustment with its largest drop in nearly five months against a trade-weighted basket of currencies. GBP/USD now resides below where it did in September when the central bank hinted clearly that it would be hiking rates.
-    Markit’s October construction PMI entered expansion territory at 50.8, up from the previous month’s contraction of 48.1.
 
Week ahead
 
The pound has begun the week with a disappointing economic figure from the automotive industry. The October British car sales reading dropped by -12.2% on the year, showing that the car industry is struggling, with sales falling steadily since April. The decline has been attributed to a fall in both business and consumer confidence. In terms of other economic data, it looks as if it will be a quiet week ahead for the pound. Investors will look towards Thursday’s house price balance data, before Friday’s slew of medium-tier releases. Industrial production, manufacturing production, construction output, trade balance, and UK growth estimate data will be released throughout Friday’s European session and could have a moderate impact on sterling. Meanwhile, a few BoE representatives are due to speak which could also influence the pound. Brexit is an ongoing factor which could also play its part in dictating sterling movement, and the Confederation of British Industry’s (CBI’s) annual conference is taking place in London all day today which could cause some other movement.

 

Europe | EUR

EUR – Draghi speeches ahead
 
Last week
 
-    German inflation came in at 1.6% on the year in October, a shade lower than the 1.7% forecast and previous 1.8% reading.
-    The Eurozone consumer price index (CPI) also defied forecasts, coming in at 1.4% on the year in October, rather than holding steady at 1.5% as expected. The core measure dropped from 1.1% to 0.9%.
-    Germany’s unemployment rate held steady at 5.6%.
-    The Catalonia crisis continued and former Catalan leader and four officials handed themselves into Belgian police after an EU arrest warrant surfaced.
 
Week ahead

Tuesday is likely to be an important day for the euro exchange rate with a host of European Central Bank (ECB) officials, including President Mario Draghi, due to speak in Frankfurt.  Additionally, Eurozone retail sales numbers will hit the market on Tuesday, along with German industrial production and construction data. A few other central bank representatives are scheduled to speak throughout the week, but Draghi is due to take the limelight again at the end of the week in Milan which could cause further EUR fluctuations.

 

USA | USD

USD - Fed signals one more rate increase
 
Last week
 
-    US consumer confidence jumped to its highest level in almost 17 years at 125.9 in October.
-    The US Federal Reserve kept interest rates on hold in a unanimous vote, but policymakers still felt another hike was due before the end of 2017.
-    President Donald Trump appointed Jerome Powell as new Fed Chair.
-    US non-farm payrolls came in below forecast at 261K in October, rather than the 313K expected. September’s figure was also revised to 18K.
-    The US unemployment rate edged down to 4.1% - the lowest since 2000.
 
Week ahead
 
It’s scheduled to be a quiet week in terms of US economic data too, meaning some of the USD’s exchange rate fluctuations will be influenced by events elsewhere. Tuesday will see the moderately influential consumer credit figure out, followed by mortgage applications and crude oil inventories on Wednesday. Thursday continues with the weekly initial jobless claims and continuing claims roundup, followed by Friday’s highly influential University of Michigan sentiment reading. It’s possible politics could also influence the US dollar this week and central bank developments could also play a role in greenback movement.  

OTHER

AUD - Aussie climbs versus GBP, but loses ground when retail sales stumble

Last week the Aussie dollar was able to climb by around 2.0% against the pound after the Bank of England’s rate announcement. However, sterling managed to claw back some losses by the end of the week. Australian retail sales came in flat at 0.0% in September which gave the pound the opportunity to take back some ground. The ecostats surprised markets as economists had predicted a 0.4% rebound after a surprise drop in the previous month.

NZD - Kiwi dollar reaches two-week high
 
The New Zealand dollar managed to climb to a two-week high versus the pound last week after the Bank of England hiked interest rates. Also, the Kiwi dollar was offered some stability against the US Dollar, after having recently tumbled to a 17-month low following New Zealand’s unclear election. The political shakeup has caused speculation to surface as to how the new Labour government may play a role in stifling interest rate increases.
 
CAD - Canadian economy shows signs of slowing
 
Last week showed Canadian growth had slipped from 3.9% in July, to 3.5% in August on the year. Additionally, the Canadian unemployment rate edged higher from 6.2% to 6.3%, despite forecasts to remain stable. Economists have been forecasting a slowdown in the second half of the year in comparison to Canada’s red-hot growth in the first half of 2017.
 
It could be an exciting week ahead for the Canadian dollar with Bank of Canada Governor Stephen Poloz due to speak in Montreal, before a follow-up press conference takes place on Tuesday. Additionally, Canadian housing starts, building permits, and new housing price index will be out throughout the week.

 

 

DATA

 

EUR ECB’s Mario Draghi speaks   Tuesday
CAD  BoC’s Stephen Poloz speaks  Tuesday 
EUR  ECB publishes economic bulletin  Thursday
USD  University of Michigan sentiment data  Friday
GBP  UK growth estimate  Friday
GBP  Trade balance dat  Friday
 

 

 

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