'No ifs or buts'
GBP – Pound health deteriorates
The Pound hit a fresh 28-month low against the US Dollar last week as the threat of a no-deal Brexit increased. Excluding the October 2016 flash crash, the Pound remained just a percent above 34-year lows. Deutsche Bank analysts commented: ‘With 93 days until the UK’s scheduled departure from the EU on October 31st, and with Johnson’s policy of leaving that day “no ifs or buts”, fears of a no-deal outcome are increasingly being reflected in the currency.’ While the market appears to be taking the new Prime Minister’s no-deal threats seriously, it remains to be seen whether the EU will as well. Towards the end of last week, a by-election saw Boris Johnson’s Parliamentary majority reduced to just one, meaning it could be more challenging to get his no-deal Brexit idea through. The main economic event in the week ahead for the Pound will be the UK’s Gross Domestic Product growth data on Friday. Growth has been slower in recent months, and if any sign of contraction is seen, there could be more pressure on the Pound. UK services data for July will be released on Monday. The services sector makes up the largest part of UK economic growth, and any dip below last month’s 50.2 could put more pressure on the Pound.
EUR – US Dollar pressures Euro lower
The Euro bounced back at the start of last week from more than two-year lows against the US Dollar. However, as the week progressed, the Euro quickly found itself weakening to 26-month lows after comments from the US central bank regarding interest rates—an event which caused a depreciation in many currencies as the Dollar strengthened. It’s a quiet week for the Eurozone in terms of economic data, but some German statistics will be out on Tuesday, Wednesday, and Friday. Meanwhile, the European Central Bank will publish its latest Economic Bulletin on Thursday.
USD – Disappointing the White House
The US Dollar surged in Wednesday’s stateside session after the US Federal Reserve took on a more hawkish tone, much to the disappointment of the White House. Trump has been calling for lower interest rates for some time, but although the central bank lowered interest rates by a quarter-point—the first rate cut since December 2008—Fed Chief Jerome Powell was quick to stress this wasn’t the beginning of a series of rate cuts, which bolstered the US Dollar. While the latest US jobs report came in at a respectable number on Friday, Tweets from President Trump about more tariffs on Chinese goods heightened trade tensions and weighed on sentiment. The most influential piece of economic data out for the US this week will likely be the Markit Composite Purchasing Managers’ Index (PMI) on Monday.
AUD and NZD – Weighing up the central banks
The Australian Dollar didn’t have a particularly good week, hovering at levels close to those last seen when the Global Financial Crisis was in full swing in 2008. The Aussie Dollar hit six-week lows against the US Dollar after Fed comments which buoyed the Greenback. The New Zealand Dollar also fell on the news, and markets have been weighing the central bank’s statements against forecasts for cuts in the months to come. However, a weaker New Zealand Dollar eases pressure on the Reserve Bank of New Zealand (RBNZ) when it comes to cutting rates again.
It’s a busy week in the Trans-Tasman, with New Zealand employment figures on Monday, the Reserve Bank of Australia’s interest rate decision on Tuesday, followed by the RBNZ rate decision on Thursday.
CAD – Beating expectations
Some positive steps in manufacturing activity allowed Canadian growth to beat expectations in May, allowing the Canadian Dollar to enjoy a rally last week. However, the Loonie quickly hit a five-week low against the US Dollar after hawkish comments from the Federal Reserve. The Canadian Dollar could be in for some movement towards the end of the week when economic data is released detailing the health of the labour market.