Post date: 11/02/2019 09:00

The dollar rallied sharply last week against every other G10 currency, followed closely by the Japanese Yen and Swiss Franc. Currencies particularly leveraged to the economic cycle like the Swedish Krona and the Australian and New Zealand dollar performed particularly poorly. The absence of good news from the US-China trade negotiations contributed to spooking investors and sending them to safe havens, as did a raft of mostly weak European country-level data. Meanwhile, there is also no progress in the Brexit negotiations as the clock rounds down, though Sterling managed to keep pace with the Euro.

Next week data is relatively light. Focus will continue to be on political development, including the resumption of trade talks between the US and China and further votes on Brexit amendments in the UK. In the US, inflation data out Wednesday will inform trader expectations for the prospect of further 2019 hikes.


The Bank of England met last Thursday and issued a fairly dovish assessment of the state of the economy. However, the uncertainty surrounding Brexit and the possibility of a no-deal outcome continue to focus the attention of currency markets. The absence of any news on this score meant Sterling tracked very closely the euro against all other major currencies.

This week we will get fourth-quarter GDP (Monday) and inflation (Wednesday). However, most of the market action should happen Thursday as the British Parliament votes on a variety of amendments to the Brexit negotiations.


A spate of mostly weak Eurozone data included German industrial production and factory orders in December. As 10-year German yields head back towards zero, the euro was unable to hold on to the 1.14 levels against the dollar and fell towards 2019 lows around 1.13 against the US dollar. We still think that the recent weak patch is temporary, and the combined effect of still strong labour market data and extremely simulative monetary policy rules out any possibility of a near-term recession. However, we are keeping a very close watch on Eurozone data.


The dollar sailed past some fairly weak second tier economic data. While no single factor can account for the rally in the greenback, the absence of unambiguously good news in any of the open fronts (Brexit, China trade deal…) meant jittery investors sought the safety of safe havens and the dollar benefited. Main focus this week, aside from the possibility of a breakthrough in the trade negotiations with China, will be the inflation numbers for January out Wednesday. An upside surprise in the core number could lead markets to put back some hikes in their expectations for Fed moves in 2019.