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Weekly Currency Review: GBP, USD, EUR, CAD, AUD, NZD

26 June 2017 by News Desk

The currency markets are feeling a heavy political influence of late, with plenty happening to keep exchange rates on their toes, say industry experts FC Exchange.

GBP – Politics Rule the Pound Exchange Rate

Last Monday saw the formal Brexit negotiations begin between the UK and EU. Whilst the EU appears to have a clear position in talks, the UK’s approach remains muddled and conflicted.

The pound took a hit early last week when Bank of England (BoE) Governor Mark Carney spoke on Tuesday at Mansion House in London. He effectively put to bed any rumours of an interest rate hike for the UK soon, stating that the time is not right for an interest rate rise. He highlighted that wage growth is falling and the impact of Brexit on the economy is unclear. The pound fell sharply after his comments losing all the gains made from the previous Bank of England meeting when three out of eight policymakers voted for a rate hike.

On Wednesday, the pound saw a small reprieve in the form of comments from the bank’s Chief Economist Andy Haldane, who indicated that ‘providing the data is still on track’, he may support the tightening of UK monetary policy in the not too distant future.

The markets are also following the UK’s political situation; last week both Philip Hammond and Democratic Unionist Party (DUP) lawmaker Jeffrey Donaldson, suggested they are confident that a deal will materialise between the Conservatives and the DUP. If this does indeed come to fruition, markets may see a little upside for the pound towards the end of the coming week.

EUR – Will Q2 GDP beat Q1 and Give the Euro a Boost?

Last week the euro was effectively dominated by political events in the UK and discussions of Brexit, with very little data of note; this caused a subdued tone for most of the week.

Markets waited for Friday’s flash manufacturing and services purchasing managers’ indexes (PMI) from Germany, France, and the Eurozone to give the euro anything to move on. It was a mixed result with manufacturing exceeding forecasts overall, but services came in weaker than expected across the board. The euro dipped slightly against the pound following the releases but quickly recovered.

In terms of the week ahead most of the main releases are coming from the Eurozone. HICP inflation is forecast to edge lower again at 1.2% whilst core inflation traces down to 1%. Economic sentiment is predicted to creep higher and Eurozone gross domestic product (GDP) data for Q2 could show a strong result and it may have the potential to exceed the 0.6% rise in Q1.

Monday will kick off the week with the European Central Bank’s forum held in Sintra, which will include BoE Governor Mark Carney and Bank of Japan (BoJ) Governor Haruhiko Kuroda.

USD – US Dollar Awaits Trump Momentum

There was also little last week to move the dollar one way or the other so it was guided by events elsewhere. Crude oil supplies dropped for the second consecutive week causing some volatility for EUR/USD on Wednesday. On Thursday unemployment claims came in as expected at 241k and new home sales data on Friday came in slightly above expectations at 610k.

Given the current difficulties of the Trump administration there is increasing scepticism about the extent of the fiscal policy measures that the President will be able to introduce. However, some momentum on this is likely to be what is needed for the dollar to register some gains.

For the US this week, Tuesday will bring consumer confidence data which is forecast to continue posting strong levels of 116.9. However, on Friday inflation for the US is expected to slow further to 1.4% continuing its recent trend lower.

NZD – RBNZ Holds Cash Rate but Remains Positive

As expected, last week the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) unchanged at 1.75% however the positive tone of the statement that followed caused a NZD rally against the pound and it now remains close to four-month highs.

CAD – Weak Inflation Figures Cause Loonie Drop

On Friday Canada posted a weaker-than-expected month-on-month inflation figure at 0.1%. It was forecast to come in at 0.2% and has dropped from the previous reading of 0.4%. The Canadian dollar lost 0.5% versus the pound following this reading.

AUD – RBA Meeting Minutes in Focus

Last week the Reserve Bank of Australia (RBA) released its latest meeting minutes. The main takeaways were that monetary policy would remain unchanged, that both the labour and housing markets would be under the close eye of the central bank, and that Q1 was forecast to have cooled down on the back of weak consumption.

The transcript read: ‘Weak growth in retail sales in the March quarter had pointed to a slowing in consumption growth following strong growth in the December quarter.’

It’s a quiet week ahead in terms of Australian economic data with only the release of private sector net credit, Australian job vacancies, and new home sales to note.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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