Back to Brexit
Thinking about Brexit
At the end of last week, the Pound was set for its largest weekly decline against the US Dollar in a month, falling by over 1.5%. Sterling slipped below the interbank levels of 1.26 versus the US Dollar, and 1.10 against the Euro. Economic uncertainty, Brexit, and the number of coronavirus deaths all contributed to Sterling weakness. Investors are concerned that weaker data could trigger the Bank of England to take further action after growth for May failed to live up to forecasts. While last week was a heavy one for data, the focus is likely to shift to Brexit talks in the weeks ahead. The prospect of a poor trade deal could put significant pressure on the Pound. This week, Brexit negotiations and comments by Bank of England policymakers will be in sharp focus. Friday will also see the release of UK retail, manufacturing, and services data which could influence the Pound.
Keeping policy unchanged
Last week, the European Central Bank decided to leave monetary policy unchanged in July, in line with expectations. Following this, eyes shifted to the EU Summit that began on Friday, with the Euro making some gains on hopes that officials could agree on stimulus measures. The Euro index managed to reach 18-month highs, and has continued to post fresh gains into today's session. Positive news on the EU Recovery Fund could propel the single currency into further gains against major currencies in what's expected to be a quiet data week. However, consumer confidence, manufacturing, and services data will be out this week and could influence the Euro exchange rate.
On the back foot
The US Dollar experienced another week of softness, falling against a lot of other currency majors. The Dollar index has been hovering 1.4% away from 2020 lows. The week ahead will reveal manufacturing and services data, as well as home sales and weekly jobless claims prints. Another significant increase in unemployment could cause anxiety that recent declines in unemployment are slowing or stagnating. The US Dollar could also experience movement on geopolitical events, and general risk sentiment as a safe-haven currency.
AUD and NZD
The Australian Dollar made a small gain versus the US Dollar last week, but the New Zealand Dollar held in a tight range. Both currencies felt the disappointment of mixed data from the Trans-Tasman economies, as well as from China. While Chinese growth rebounded, retail data disappointed. In New Zealand, inflation dropped for the first time in four years in Q1, while the annual figure also declined. Data like this could cause the Reserve Bank of New Zealand to remain accommodative when it comes to monetary policy. In Australia, employment rebounded, but the unemployment rate rose with more job seekers in the market.
In the week ahead, the meeting minutes from the Reserve Bank of Australia's July gathering could influence the Aussie Dollar, which will be followed by a speech by Governor Philip Lowe. Later in the week, the Australian government will announce its mini-budget, which will detail fiscal stimulus plans.
Sinking on restrictions
Last week, the Canadian economy showed 952.9K jobs were added in June, far exceeding the 700K forecast and the previous At the start of last week, the Canadian Dollar hit a two-week low versus the US Dollar after fears or a travel restriction between Canada and the US pressured the currency lower. Such a move could be a burden to the Canadian economy at a time of shaky global growth. As the week continued, a dovish Bank of Canada outlook on interest rates and inflation continued to dampen the Loonie. In the week ahead, important inflation data, as well as retail and housing stats, will reach the market and could influence the CAD exchange rate.