A week of two halves in FX markets
It was a ‘game of two halves’ last week in FX markets, with the dollar in the ascendancy initially before reversing course quite sharply thereafter albeit ending the week little changed overall. The euro and sterling closed out the week at around $1.1565 and $1.3160 against the US currency respectively, well off their intra-week lows of circa $1.1470 and $1.3010 and just below their highs for the week of $1.1590 and $1.3175 on Friday. The pound fell to lows of £0.8830 against the single currency ahead of Thursday’s Bank of England’s (BoE) interest rate announcement but recovered to about £0.8780 by the close of play on Friday. There are important UK economic data due this week, including labour market (Tuesday) and GDP (Thursday) reports for Q3, which will shape expectations for the BoE’s December meeting and so could have an impact on the pound. Meanwhile, there has been progress over the weekend in ending the government shutdown in the US, though this is not having much impact on FX markets as of yet (with the main currency pairs little changed from Friday’s closing levels).
UK government bonds underperformed last week with yields rising by 4-7bps across the curve, though this has to be seen in the context of the very sharp decline in yields that had occurred in the run-up to this month’s BoE meeting. German yields were 2-4bps higher on the week, while US bonds had a mixed performance with 2- and 10-year yields a touch lower and a touch higher respectively. Yields generally are edging higher this morning, probably in response to the news regarding the US government shutdown.
US equity markets bounced off lows for the week on Friday as word began to filter through of possible progress in negotiations to end the government shutdown, though the S&P 500 and the Nasdaq still shed around 2% and 3% on the week respectively. European stocks, which lost around 1.5% last week, have opened in positive territory this morning, up more than 1% in early trading, while the futures market points to gains for US stocks later today too.
Consumer confidence in the US fell for a fourth month in a row in November according to the latest University of Michigan survey, with consumers’ assessment of ‘current conditions’ declining to a multi-decade low. The survey noted that “with the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy.”
Looking to the week ahead, as mentioned above, there are some important economic data due in the UK over the course of this week, while Euro area data include industrial production for September on Thursday and Q3 GDP & Employment on Friday. There are a number of ECB, Fed and BoE members scheduled to speak over the course of the week, while markets will also be watching developments relating to ending the US government shutdown.