Euro stabilises as political news take a turn for the better

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2 July 2018

thomasdodds

The Dollar, Euro and Pound had a volatile week. The Dollar advanced earlier in the week as risk aversion swept markets on news that Trump was considering restrictions on Chinese investments.

T
he Euro was further weighed down by fears that the lack of an agreement over migration would doom Merkel’s governing coalition in Germany. By the end of the week, news that a surprise agreement was reached which facilitated a Euro rebound that left it unchanged for the week, with the Pound following close behind.

The week’s loser was the New Zealand Dollar, which fell over 2% on news that the central bank became concerned about downside risks to the economy.

The focus this week will be on Friday’s payroll report in the US. The UK PMI indices of business activity out on Monday and Wednesday could also buoy Sterling, while the Australian and Swedish central banks both meet on Tuesday.

Major currencies in detail

GBP

A very quiet week with no major developments either in economic news or the Brexit negotiations left Sterling closely following the Euro’s moves against non-European currencies. This week’s trading will be driven by the release of the PMI indices of business activity on Monday and Wednesday. There is a decent chance of an upside surprise in view of the generally stronger tone of recent economic news out of the UK. If so, we see potential for a significant rally in Sterling, against both the Euro and the Dollar.

EUR

The surprising European Union agreement on migrant policy provided some badly needed support for the common currency. However, news on Sunday night that the Bavarian Social Christians were demanding migrants registered in a different country be turned back at the border, in violation of the Schengen agreement, threatened again to undo the governing coalition. There is little economic or policy news out of the Eurozone this week, save for German factory orders on Thursday. Political headlines will remain on the driver’s seat there.

USD

Economic news in the US was somewhat softer than expected for a few weeks. It is still early to adscribe any significance to this, but the lack of any reaction in the US Dollar means that it is probably vulnerable to any downside surprise from the US payroll report out Friday afternoon, given the general expectations for another strong print. Also important will be the publication of the minutes from the Federal Reserve’s last meeting on Thursday.