Lizzy Birmingham provides a brief roundup of the major FX moves this week, and the drivers behind each.
1) SNB Upholds Ultra-Loose Policy
The Swiss franc was up 0.2% to 1.12127 per euro on Thursday following Swiss National Bank (SNB) president, Thomas Jordan’s, announcement to maintain loose monetary policy.
In an interview with Bloomberg, Jordan commented on deteriorating economic conditions worldwide, concluding that he sees “no reason to tighten monetary policy.”
The downshift in the global economy has recently boosted the Swiss franc, a safe-haven currency in times of economic stress. The currency reached 1.11178 earlier this month, the highest since 2017.
The SNB also adjusted expected inflation rates for the coming years due to global economic risks that are “more pronounced than at our previous monetary policy assessment.”
2) Pound Drops As Fears of a No-Deal Brexit Rise
The British pound fell 0.2% against the euro to 89.115 pence today, putting it on track for its sixth consecutive week of losses.
The pound’s continued depreciation comes as the contest for the next English prime minister heats up, with Boris Johnson standing out as the clear frontrunner.
According to Reuters, betting markets give Johnson a 70% probability of winning.
Investors worry that, if elected, Johnson will lead Britain out of the European Union (EU) in October with no deal in place for future trading conditions, spelling disaster for the English economy. The EU has been insistent that any deal established, or lack thereof, will not be up for negotiation after October 31st.
As no-deal Brexit worried rose, the pound also slipped 1.2601 against the USD on Friday.
3) Austrailian Dollar Slips
The Austrailian dollar fell 0.3% to $0.6908 against the USD on Friday following a gloomy employment report on Wednesday.
The Austrailian Bureau of Statistics released its May statistics, finding that unemployment stubbornly remained at 5.2% last month, despite the creation of 42,300 jobs.
Amidst poor employment conditions, the Austrailian Central Bank cut rates for the first time in three years on June 4th. The Business Recorder anticipates a 72% chance of another rate cut in July.
Channel News Asia quotes Manuel Oliveri, an FX strategist at Credit Agricole in London, as saying: “Rising interest rate cut expectations thanks to weak data has fuelled weakness in the Australian dollar with trade tensions also weighing on demand.”
4) Research Contradicts Trump’s Claims
A research note from Societe Generale on Tuesday revealed that the dollar has fallen against the yen, the euro and the Chinese yuan over the last twenty years.
This long-term data comes as senior members of the US administration, including the president himself, accuse China of artificially depreciating its currency against the USD.
On Saturday, US treasury secretary Steve Mnuchin was widely quoted by news outlets as saying “the decision not to intervene after intervening for a very long period of time” has led markets to believe that there is a desire from China to weaken its currency.
Yet, Societe Generale’s research found that, while in trade-weighted terms the dollar has gained 10% over the last 20 years, in real terms the dollar is in the same position it was in June 1999.
The research also stated that in real terms, the yuan has gained about 30% against the dollar over the same period of time.
5) Peso Bounces Back Following Trade Negotiations
The Mexican peso surged 2% on Monday to 19.2782 pesos per dollar, a shift from last week’s poor performance.
Last week, the peso suffered losses after president Donald Trump announced a 5% tariff on all Mexican goods if Mexico did not commit to tighten borders.
Monday’s turnaround from last week’s poor performance came following announcements that trade talks between the US and Mexico had been successful, and therefore tariffs will not be put into effect.
Reuters quotes Kit Juckes, Societe Generale strategist, as saying: “The lessening of US/Mexican tension clearly helps the mood somewhat, and obviously helps the peso, but the US/Chinese trade conflict has much wider implications.”