Ebbing trade war threats see US Dollar retreat

 

Pound - GBP 

Carney under fire for Brexit comments

The GBP/EUR exchange rate hit two-week highs on Wednesday, but the surge was short-lived. Bank of England (BoE) Governor Mark Carney warned of the economic impact of a no-deal Brexit, suggesting the effect could be the worst recession since WWII with the economy shrinking by up to 8.0%. Carney also stated house prices could drop by a third, and the Pound to US Dollar (GBP/USD) exchange rate could reach parity. However, Carney came under fire when news headlines stated the central bank mogul had unleashed ‘Project Hysteria’ with the bleak forecast. Some news providers suggested Carney had undermined the Bank’s independence and credibility. Brexit is likely to remain the most influential Sterling driver in coming months; this week could be turbulent for the Pound as Brexit debates take place. The Pound has begun the week on the front foot against the US Dollar (GBP/USD) as global risk appetite rises, while also remaining steady against the Euro. Mark Carney is expected to speak on Tuesday, and the BoE will release its 12-month inflation forecast on Friday. 

Euro - EUR

Will the ECB's rate hike guidance remain in place?

The Euro gained some support last week when hopes rose that an Italian budget compromise could be met. In other news, Eurozone inflation slipped from 2.2% in October to 2.0% in November, which raised more questions about the European Central Bank’s (ECB) decision to tie up its massive quantitative easing programme. The central bank has suggested interest rates could rise after summer 2019, but if weaker economic data persists, investors will begin to wonder how likely that is. The Euro has already started the week trending higher against the US Dollar (EUR/USD). Influential Eurozone economic data is thin on the ground in the week ahead, meaning the common currency might be more susceptible to central bank or geopolitical developments. 

US Dollar - USD 

Non-Farm Payrolls ahead

In terms of economic data, US Consumer Confidence took a tumble last week, easing for the first time in five months and declining from an 18-year high. If the pace of US growth continues moderating, sentiment could cool further too. Given the developments over the weekend, the Greenback has retreated as risk sentiment increases following a truce between the US and China on trade. The big data for the US this week will be the Change in Non-Farm Payrolls figure due out on Friday. Forecasts suggest a print in the region of 199K will be revealed for November, following the previous month’s 250K, which could boost the US Dollar. 

Australian Dollar - AUD 

Aussie climbs after US-China truce 

The Australian Dollar has experienced some volatility recently given trade disputes from two of Australia’s largest trading partners, the US and China. The Aussie Dollar has jumped after the US and China reached a truce over the weekend, which has been positive for higher-risk currencies and emerging markets. The Australian Dollar to US Dollar (AUD/USD) exchange rate has been residing near a four-month high, while also climbing against other currency majors. Wednesday could be an interesting day for the Aussie Dollar when the latest Australian growth figures are revealed; forecasts suggest a small dip could take place. 

New Zealand Dollar - NZD

RBNZ financial stability report in focus 

The Kiwi Dollar enjoyed a lift last week after the Reserve Bank of New Zealand (RBNZ) released its financial stability report. The central bank relaxed curbs on high-risk mortgage lending while suggesting the risks to financial stability had lessened. The New Zealand Dollar hit a five-month high against the US Dollar as Oceanic markets opened, after global trade tensions cooled. The trade debates have threatened to hinder global growth and have weighed significantly on economies that rely heavily on trade. This week investors will be watching the price of dairy products at the latest auction to help determine the Kiwi Dollar’s worth. 

Canadian Dollar - CAD

Canadian growth raises questions on the rate hikes

Last week the Canadian Dollar slipped after data showed the Canadian economy contracted in September on the year. Growth fell from 2.4% to 2.1%, despite economists forecasting a softer fall to 2.3%. The move cast doubt on the Bank of Canada’s (BoC) interest rate outlook which caused the Canadian Dollar to weaken. Wednesday will see the BoC make its latest interest rate decision, while Friday will bring with it highly important labour market data.