Five on Friday: What Happened in Markets This Week

Lizzy Birmingham provides a brief roundup of the major FX moves this week, and the drivers behind each.

1) GBP Plummets Amid Uncertainty

The British pound has hit a four month low. The continued drop in value has been caused by opposing parties failing to create Brexit deal and the looming resignation of Prime Minister Theresa May as a result.

Reuters quotes Adam Cole, chief currency strategist at RBC Capital Markets, as saying: “What we’re seeing is the market pricing in a higher probability of an exit without a deal.”

Besides Brexit uncertainty, GBP’s drop could be influenced by newly released British employment data showing low wage growth in the quarter ending March.

 

2) AUD Falls Due to International and Domestic Tension

The Australian dollar has declined around 2.3% this month to under $0.70 USD. This lands the AUD at its lowest value since January 3, 2019.

Reasons behind the loss in value include increasing unemployment within the county and escalating trade tensions between the United States and China.

Exchange Rates UK quotes Janu Chan, senior economist at St. George Bank in Sydney, as saying: “The environment of uncertainty around trade is unhelpful – and I see it falling to perhaps below USD 0.68 in the short term.”

The National Australia Bank has announced RBA rate cuts and the potential for more stimulus by 2020 in an effort to limit depreciation.

 

3) Italy Threatens to Break EU Rules

The euro slid against the dollar this week as the political and economic crisis worsened in Italy.

This occurred as a result of Italy’s deputy prime minister saying that if necessary, the country will break EU budget rules on debt levels to spur employment.

Reuters quotes Matteo Salvini, Italy’s deputy prime minister, as saying: “If we need to break some limits, like the 3% (deficit-to-GDP ratio) or 130-140% (debt-to-GDP ratio), we’re ready to go ahead,” says Matteo Salvini, Italy’s deputy prime minister. “Until we arrive at 5% unemployment, we will spend everything that we should and if someone in Brussels complains, that won’t be our concern.”

Since polling in March resulted in a hung assembly, Italy has been unable to form a stable coalition government.

It should also be noted that Italy already has a considerable amount of debt – around €2.3 trillion – and has a been facing double-digit unemployment since 2012.

 

4) USD Stays Afloat Amid Trade Discussions

The USD climbed this week as the US and China vowed to continue trade negotiations.

On Tuesday, President Donald Trump referred to the intensifying trade war with China as a “little squabble,” according to reports from mainstream media outlets, as he reassured reporters that negotiations have not collapsed. These remarks come despite the fact that the US prepares 25% duties on remaining imports from China.

In other news, on Friday, in a proclamation issued by the White House, President Trump agreed to delay tariffs on imported cars and auto parts, putting investors watching discussions between the US, EU and Japan at ease, for now.

Trump concluded that tariffs on imported cars and auto parts cause harm to the US automobile industry and pose a threat to the national security of the US.

Amid economic turbulence world-wide, the USD remains a “safe-haven currency.”

 

5) Germany’s Economy Rebounds

Germany’s economy saw a return to growth in Q1 2019.

On Wednesday, the Federal Statistics Office in Germany announced that the country’s economy has grown 0.4% within its first quarter. The sudden boost in Germany’s economy has been attributed to a boom in construction, better employment outlook, and higher household spending.

News of economic growth comes as a relief to investors, as Germany, Europe’s largest economy, narrowly avoided a recession in late 2018. It also comes as a welcome surprise against a backdrop of economies globally that are suffering as a result of escalating trade tensions.

Lizzy Birmingham

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