FX markets continue to be rangebound, EURUSD albeit towards the lower end
Last week has seen the FX markets facing some hawkish threats from both ends of the ocean, here is a short summary of the main highlights:
• ECB leaves policy unchanged but tweaks ‘forward guidance’ – growth forecast raised but dovish on inflation.
• February UK services PMI climbs to 54.5 from 53.0
• US President Trump signs order to adopt tariffs on steel (25%) and aluminium (10%) imports
• US payrolls rise by a stronger than expected 313k in February, but wage growth slows to only 2.6%y/y from a downwardly revised 2.8%
Pound Sterling – UK Markets
The Pound to Euro rate remains steady, exchanging at €1.12. Sterling also remains steady against the US Dollar, with the exchange rate keeping at $1.38.
In the UK there is no significant data, but the inaugural Spring statement is due for release on Tuesday. This event has been downgraded following the appointment of Hammond, as the main Budget statement now takes place in the autumn. Under the law, the Office for Budget Responsibility, is mandated to produce two forecasts for borrowing and growth a year, one in the Spring and one in the Autumn; as a result, the focus will be on their forecast.
Another big event to watch out for this week is the Bank of England’s (BOE) Financial Policy Committee (FPC) meeting this Monday, we can expect the statement to be published on Friday 16th March. This is unlikely to impact the FX markets to a great extent, BOE will discuss likely changes to Counter Cyclical Capital Buffer (CCYB), which were introduced after the financial crisis under the Basel 3 regulatory framework, intended to guard against reactionary lending increases during upturns and excessive thrift during downturns.
US Dollar – US Markets
The Euro remains steady against the US Dollar, exchanging at $1.23. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, sits at 89.99.
Much of the focus this week will be on the US Data, where there are several significant reports. The next FMOC meeting is less than two weeks away. The US central bank is expected to raise interest rates by a further 0.25% in Jerome Powell’s first meeting.
This week’s data will be used as a further confirmation tool following last week’s NFP’s. Of particular interest will be February’s CPI report, to be released on Tuesday and retail sales, to be released on Wednesday. The data will be deciphered for clues on the policy statement and whether the FOMC will signpost the possibility of four hikes in 2018.
Euro – European Markets
The Euro fell a little against the Pound, with the exchange rate now at £0.88.
Following the last week’s ECB meeting, the Euro has shown some volatility, as President Mario Draghi suggested there wouldn’t be much hesitation to exit incentive in his press conference after. Draghi is scheduled to speak this Wednesday, 14th March, post which Euro is likely to move if talks of issues of future monetary policy changes are brought up.
European markets are likely to have their eyes set on the European finance ministers (Eurogroup) this Monday, Tuesday and Wednesday, as well as news from preliminary coalition talks in Italy, where the outcome is still pretty vague. The foresight of the Euro is therefore also rather vague, as the government is still in a process to decide whether the anti-EU 5 Star part is to be included or not.
Norway’s government has vowed spending restraint from the country’s trillion-dollar sovereign wealth fund as economic growth sees a healthy pick up, said the Finance Minister Siv Jensen during a news conference ahead of the government’s initial meeting to formulate a monetary spending plan for 2019.
Other Currencies – Highlights
The Sterling remains steady against the Australian Dollar, with the exchange rate at 1.76 AUD.
The Pound holds steady against the Japanese Yen, which now stands at 147.37¥.
This Monday has seen the Asian stocks posting broad gains, following strong US employment data the previous Friday. The Nikkei 225 rose by 1.7%, while the SX 200 was also up, showing a 0.6% rise, with most other Asian bourses in the green too as its close approached. It came as a surprise to see steel producers in places like Japan and Korea notice some gains in the face of the looming levy of import tariffs by the US.
Australia felt some sense of relief as the markets opened up this Monday, their material stocks were among the best performers, the S&P/ASX 200 closed up 33 points, or 0.6% at 5,996. The spur in good numbers came following the news that Australia could be exempted from US trade tariffs on steel and aluminum imports.
New Zealand’s S&P/ASX 50 index rose 74 points, or 0.9%, to finish at a record 8,464.