The New Year brought Sterling weakness with it, and the Pound has been softer against major currencies including the Euro and US Dollar as Brexit jitters weigh. Towards the end of last week, the Pound withdrew on account of data showing weak construction numbers and consumer demand—figures attributed to Brexit's ongoing impact. The Pound also sank to a one-month low versus the Japanese Yen after the US airstrike in Iraq, as investors headed for safe-haven assets. Sterling's starting the week on the front foot, climbing across the board. Markit's final reading for December's Services and Composite PMI's have both been positively revised higher too, showing an increase after the election, which may offer some support to Sterling throughout the day. Parliament will return from its recess tomorrow, and politics will be in the limelight once again, which could cause some Pound fluctuations in the months ahead. Thursday will see Bank of England Governor Mark Carney speak in London—something that could be of influence, particularly if monetary policy is mentioned.
The Pound experienced a New Year's Eve rally versus the Euro, but it was short-lived, with Sterling paring losses against the common currency towards the end of last week. The Euro also held its ground against the US Dollar. German Retail Sales have posted an unexpectedly strong number for November this morning, and Eurozone Investor Confidence took a surprising leap higher, from the previous 0.7, above the forecast 2.6, to 7.6 in January. Meanwhile, Tuesday will bring with it Eurozone inflation data which could offer the Euro some significant opportunity to move if the reading doesn't fall in line with forecasts. Eurozone Retail Sales and Unemployment Rate numbers will also make their way onto the market this week, alongside a host of German stats which could move the Euro exchange rate.
US President Donald Trump ordered an airstrike that escalated conflict with Iran when an Iranian General was killed. Safe-haven assets have climbed as markets fear a renewed conflict with the Middle East could arise, potentially resulting in war. The US Dollar Index rose, distancing itself further from recent six-month lows. Gold, the ultimate safe-haven asset rose to its highest level since 2013, while oil prices have been increasing on the prospect of a supply disruption. There are a number of data points out in the week ahead that could impact the US Dollar, but one of the most influential might be the Change in Non-Farm Payrolls stat for December on Friday. A bounce higher than forecast in the jobs number could allow the US Dollar to rise. However, market sentiment may be mixed this week, with markets digesting the US-Iran tensions and any further developments, as well as eyeing an agreement between the US and China.
The Australian and New Zealand Dollars have been softer in response to the US-Iran conflict, a theme which could continue if these geopolitical tensions rise further. The Australian bushfires have also been weighing on the Oceanic currencies. The devastation is likely to impact Australian economic growth, while the country is already struggling with waning confidence, weak retail sales, and sluggish wage growth. Recent interest rate cuts haven't been able to support the economy as much as hoped, meaning markets will be watching closely for any signs of more cuts in the first quarter.
There are a few medium-tier Australian data releases out this week which could influence the Aussie Dollar, such as construction sector numbers, consumer confidence readings, and inflation stats. In New Zealand, House Sales, Building Permits, and Business Opinion will all be in focus. Despite the data, the Aussie and Kiwi Dollars may find their main source of movement is risk appetite on account of geopolitical tensions.
The Canadian Dollar was another currency to soften on US-Iranian tensions as risk appetite was curbed. The CAD/USD exchange rate weakened on Friday, losing some of its strength from earlier in the week. The price of oil—Canada's largest commodity—jumped to its strongest level in three months last week. However, the jump didn't benefit the Loonie as risk-off mode swept through the market. Canada exports a significant amount of commodities, and a slowdown in global trade could create economic weakness. The Canadian Dollar could move this week on account of several data releases, but one of the most influential could be Friday's labour market data. The Canadian Unemployment Rate is expected to decrease from 5.9% to 5.8%.