Brexit and German recession concerns in focus
Brexit concerns rise again
The Pound was trading near a six-week low against the US Dollar last week while also softening against the Euro as Brexit concerns rose in the market once again. Both Boris Johnson and Michel Barnier traded blows, raising worries over the possibility of a no-deal exit. However, British data took a positive upswing in manufacturing, construction, and services sectors—the latter is responsible for around 80% of the country’s economic growth. This week, UK growth numbers could create some market movement on Tuesday. Forecasts currently expect the quarter-on-quarter reading to come in flat at 0.0% after the previous 0.4% print—any deviation higher or lower could push the Pound to gain or soften. Sterling’s movement may be made up of several factors on Tuesday, with Manufacturing Production, Construction Output, and Industrial Production data reaching markets too.
German recession in question
The Euro, like the Pound, has been extending losses against the US Dollar this month, and the GBP/EUR exchange rate has been relatively flat. The Euro weakened against the US Dollar last week after German Industrial Production took a dive of -3.5%, much larger than the forecast -0.2%. The fall was the largest since the Global Financial Crisis, putting the question of a German recession back into the spotlight. The day before, data showed German factory orders dropped by their quickest pace in over a decade, indicating Q4 2019 could have been in recession. This week, European Central Bank Chief Christine Lagarde will speak, which could influence the Euro exchange rate. Meanwhile, other data detailing Eurozone Investor Confidence, Industrial Production, Eurozone Employment Change, and Eurozone growth will all be out throughout the week, giving the Euro some opportunity to move.
US Dollar bolstered by data
Positive data out of the US last week gave the Dollar some firm footing. On Friday, the highly influential Change in Non-Farm Payrolls stat printed more favourably than markets had anticipated, causing the Dollar to gain across the board, and end the day higher against a lot of other major currencies. Employment rose by 225K in January, much higher than the 163K forecast and previous 147K reading. However, Coronavirus concerns saw the US Dollar soften versus the Yen as investors bought the Japanese safe-haven asset. In the week ahead, comments by Federal Reserve Chair Jerome Powell could influence the US Dollar, especially if there’s any mention of the market’s hot topic, monetary policy. Additionally, inflation data will be out this week, along with Retail Sales stats which could create some significant USD market movement. Market risk sentiment surrounding geopolitical tensions and the Coronavirus could also be a factor for USD fluctuations this week.
AUD and NZD
Central bankers in focus
Down Under, the Australian Dollar slipped as last week came to a close after the Reserve Bank of Australia announced a cut in growth forecasts. The New Zealand Dollar also eased as Waitangi Day celebrations took place. The Kiwi Dollar only experienced a brief lift when the Reserve Bank of New Zealand announced higher inflation expectations.
This week, the Reserve Bank of New Zealand will be in the spotlight with its latest interest rate decision reaching the market on Wednesday. There will be a follow-up press conference, and Governor Adrian Orr will speak, which could be significant for NZD movement. Meanwhile, the Australian Dollar could experience some movement on the back of Australian Business Confidence and Consumer Sentiment numbers. Later in the week, inflation expectations will be released, and Reserve Bank of Australia Governor Philip Lowe will speak which could be significant for AUD movement should growth and monetary policy be mentioned.
Loonie hits lowest levels since November
Last week, the Canadian Dollar sank to its weakest level versus the US Dollar since November 21st, as Coronavirus concerns weighed on investor sentiment. The Canadian economy produced positive data on Friday, with Employment Change hitting levels of 34.5K in January, and Unemployment dropping to 5.5% from 5.6%, rather than increasing to 5.7% as forecast. Despite this data easing concerns that the Bank of Canada may cut interest rates in the near future, the Canadian Dollar sank to hit a two-and-a-half-month low. Additionally, a slump in oil prices—Canada’s largest export—created concerns that the economy could suffer. This week is quiet in terms of economic data, with only Canadian Housing Starts and Building Permits out today. Later in the week, Bank of Canada Governor Stephen Poloz will speak which could influence the Canadian Dollar.