Post date: 25/11/2019 12:49
G10 currencies stayed within unusually tight ranges last week. All of them ended within 0.5% or less than where they started, and the weekly ranges were very small as well. There were no significant news from the trade conflict, Brexit or major central bank policy, which helps explain the quiet market. We were somewhat surprised by the Euro's relative resilience in the phase of disappointing PMI survey data. Emerging market currencies were more active, and Latin American ones in particular had a rough week, led on the way down by the Chilean peso on continued political uncertainty. We may see another tranquil week in markets, as US traders look to their Thanksgiving holiday in the second half of the week. In the UK, the Conservative lead in the polls bodes well for Sterling outperformance. An ECB communique on Wednesday may boost volatility in the common currency, and the all-important Eurozone inflation numbers come out on Friday, but Thanksgiving week is not generally conducive to dramatic market moves.
The Leaders' debate in the UK came and went without a clear winner, which is excellent news for the Tories given their commanding lead in the polls. However, the PMI survey was very weak, consistent with a contracting economy and the lowest level since the aftermath of the Brexit referendum. After the significant rise of Sterling over the last few weeks, Sterling positioning had become stretch and PMI weakness was used as an excuse to send the Pound modestly lower. With no critical macroeconomic news on tap this week, election news will continue to dominate Sterling trading. We'd pay attention to any sign that the Tory lead is starting to erode in the final stretch of the campaign, as it did in 2017, though no indication of that has emerged as of yet.
The Euro went nowhere until later in the week, when disappointing PMI index of business activity knocked the wind out of the common currency. Lagarde's speech calling for fiscal policy took on even more urgency as signs of a reacceleration of Eurozone growth fail to materialize. The key event for this week will be the release of flash inflation numbers on Friday. The spread of economists’ forecasts is unusually wide, but it seems likely that core inflation will rise for the third consecutive month, which could provide some support for the Euro in thin Thanksgiving markets.
Economic data out of the US last week came out mostly on the strong side, though it consisted mainly of second tier releases. The dollar held its ground against other G10 currencies but rallied steadily throughout the week against emerging market currencies, the latter hurt by continued trade uncertainty. News flow will be very limited on this holiday week, though we cannot rule out market-moving headlines on the US-China trade conflict, However, the greenback is most likely to trade off news elsewhere in the world this week.