Breaking the Brexit agreement?
Brexit in focus
The Pound had a strong start to last week, trading in the interbank ranges of 1.35 versus the US Dollar, and 1.13 against the Euro. However, by mid-week, the familiar Brexit pessimistic headlines hindered Sterling strength. The Pound's coming under mounting pressure as Brexit talks resume once again this week—investors will hope an agreement can be reached by the October deadline, to save the UK from a hard exit. Any agreements over some of the key sticking points could support GBP as optimism increases. However, recent reports suggest the UK is attempting to plan new legislation which could override certain areas of the agreement made with the EU, which threatens to damage negotiations. Meanwhile, Britain's furlough scheme is soon to come to an end, which could increase job losses and negatively impact Sterling too. UK growth data will be out on Friday, as well as Industrial and Manufacturing Production stats.
Inflation surprises to the downside
Last week, the Eurozone produced a shock inflation figure, turning negative for the first time since May 2016. The reading stirred concerns that the European Central Bank may have to support the economy further with another stimulus injection. On the year, inflation slipped from 0.4% in July to -0.2% in August—in stark contrast to the 2.0% target the central bank holds. The ECB will hold its latest monetary policy meeting on Thursday, and the Euro could weaken as a result if policymakers announce their discomfort at recent gains in the currency, and suggest further easing could be an option in the future. It's not a particularly heavy data week for the Eurozone, but Italian Retail Sales, German Industrial Production, and revised growth data will all be in focus.
Clawing back losses
Last week the Dollar managed to climb against a basket of other currency majors—gaining 1.5%. The start of the week is quieter, considering the US and Canadian markets are closed for a holiday today. A lot of focus at the moment is on the US election, and markets are observing the polls carefully. In terms of economic data, labour market and inflation stats could create some market movement for the Buck this week.
AUD and NZD
Benefitting from China
The Aussie Dollar has spiked by almost 30% since March, despite the coronavirus and a weakened economic outlook. Supporting the Aussie is China's economic recovery—which has noted a rebound in its industrial sector and demand for raw materials—as it's Australia's largest trading partner. However, tensions between the two countries have increased in recent months, after Australia called for a global investigation into the origins of the deadly coronavirus which has swept the world. Additionally, the US Federal Reserve has been dovish, which has allowed other currencies to gain against the US Dollar. The New Zealand Dollar has also benefitted from these factors.
In the week ahead, Australian Consumer Confidence data will be released, as well as inflation numbers. Meanwhile, New Zealand retail spending and manufacturing data will also reach markets.
The Canadian Dollar was able to make some gains at the end of last week—following on from attaining an eight-and-a-half-month high earlier in the week—as labour market data supported the country's economic recovery. Meanwhile, the price of Canada's largest commodity, oil, declined by its largest weekly amount since June as demand softened. This week, investors will be looking towards speeches by Bank of Canada representatives, and the bank's latest interest rate decision.