Major Currencies

Major Currencies

A tumultuous week for the Euro as the ECB and Italy caused a stir. The outperforming sterling faceds setback from data releases and the dollar continueds to go strong.

Starting with the US dollar, opening at £0.7946 and closing slightly higher at £0.7951, the week has been rather unexciting, initially falling mid-week, before picking up following the fiasco in Europe. An on-consensus Non-Farm Payrolls release (178k) provides an air of inevitability to this month’s FOMC meeting, with policy makers almost 100% ‘priced-in’ for a hike.

GBP has been a clear outperformer in recent weeks, as the market has interpreted comments from key politicians, as indicative of a change in stance from the UK government towards ‘soft’ Brexit. Opening at $1.2587 and flatlining at close, the pound peaked at nearly 2 basis points higher than opening mid-week, but following the weak data that UK industrial production (worth about 15% of UK GDP) fell for the third consecutive month, at its worst rate in more than four years. It fell 1.3% in October. This was against forecasts of a growth by 0.2%. The sector could now provide a drag on the UK’s fourth quarter GDP, after subtracting 0.1% per cent from growth in the previous quarter.

Finally, the interest of the week comes from Europe. Following the Brexit-esque referendum outcome and the sombre resignation of Italy’s prime minister, Renzi, the euro has surprisingly not been affected as badly as one would think, with the risk of an Italian exit from the Eurozone very small. The Italian banking sector is shaky, as the world’s oldest bank and Italy’s third largest, Monti dei Pashci di Siena, failed to gain more time from the ECB and watched a €5bn middle eastern equity injection breakdown, dropping the euro to a week low of 0.831 to the pound. The euro however has not been too effected as Draghi sent some reprieve to the euro announcing the continuation of the asset buying programme, spiking the euro to mid-week highs of 0.857 to the pound. This sentiment was short lived as it was reversed by the close of the week to 0.839.

As the holiday looms, the markets should quieten down, with inflation expectations looming in both the US and UK, we wait on monetary news and in Europe we await the fate of Italian banking.

Robert Tse