Post date: 18/11/2019 08:34

The theme for the week in G10 currencies was the pullback in the US dollar on negative noises about the trade war and modestly better economic news out of the Eurozone. However, the star of the week was the New Zealand dollar, as the RBNZ broke ranks with other central banks and refused to validate market expectations for an interest rate cut, leaving its policy unchanged instead. The worst performing G10 currency was the Australian dollar, in what looked like forced unwinds of long AUD/NZD positions. Emerging market currencies were generally down, led by the Chilean peso selling off on political concerns. This week the focus should shift back to macroeconomic data. The PMI indices of business activity in the Eurozone out on Friday are the most critical data point. Some volatility may also be expected after the release of the minutes of the last Federal Reserve meeting Wednesday and the ECB equivalent Thursday.


A slate of macroeconomic releases on inflation, growth and the labor market came in at or slightly below expectations. However, the pound was boosted by the large lead that Conservatives retain over labor in the polls, which is boosted by the Brexit party decision to pull out of certain elections to avoid splitting the right wing vote. While the experience of 2017 reminds us that there is plenty of time for Labor to close the lead, for now the most likely scenario is a clear Johnson victory and Brexiton terms not much different from the latest Withdrawal Agreement.


The news that Germany narrowly avoided recession and helped Eurozone growth outperform expectations were a boon for the Euro and European currencies in general. Industrial production and labor data also came out better than expected. The Eurozone economy look set to skirt recession and resume growth, in line with our views. The PMI data out Friday are even more critical than usual, and we expect them to mark another solid improvement in conditions that should out to rest talk of any near term additional stimulus from the ECB. The common currency should benefit from this.


Unlike the Eurozone, Economic news out of the US have been coming in weaker than expected, although noting in the data leads us to worry yet about a sustained slowdown in growth. Data out this week will be mostly second tier, so traders will be scrutinizing the minutes from the last FOMC meeting for confirmation that the Fed is on hold for the foreseeable future.