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Welcome to the Weekly Market Analysis.
Sterling notched up its worst week since 2010
Sterling notched up its worst week since 2010 as investors gave their verdict on the UK’s forthcoming referendum on its membership of the European Union. Businesses appeared split over whether Britain should vote to leave, while ratings agencies voiced stronger concerns about what it would mean for the UK economy. In China, the G-20 said a 'Brexit' would be a "shock" for the global economy. The pound slid more than 3% versus the US dollar to head into March at its lowest in seven years. Against the euro, the pound was trading at its weakest since December 2014, while it’s down to its lowest against the Japanese yen in two and a half years.
Traders will continue to assess the likelihood of the UK leaving the EU, with polls currently suggesting the public will vote to remain in come the vote in June. Meanwhile, economic data will continue to be followed, with this week seeing the triple-bill of construction, manufacturing and services PMI reports from Markit.
US dollar recovers ground
The US dollar recovered some ground last week as economic data seemed to offer support for the Federal Reserve to raise rates again this year. The Commerce Department revised up fourth quarter growth to 1% from an initial estimate of 0.7%. Separate reports also showed consumer spending and inflation rose in January, giving the Fed more ammunition to increase rates some time this year. Against the euro, the dollar rose 1.7% for the week. By Friday the Greenback was trading up versus the yen but gains had been wiped out come Monday, 29 February, and is still down 5% for the year.
After last week’s upbeat data, attention this week turns to Friday’s non-farm payrolls report - a key indicator for the health of the US labour market and a test for the Fed’s outlook on rates. Trade balance data and ISM’s service sector report will also be closely watched.
Mixed bag for euro
The euro had a mixed bag, falling against the broadly stronger dollar but rising versus the under-pressure pound. The currency also fell against the Swiss franc and Japanese yen. The euro has not been immune to Brexit risks as investors assessed the possible impact on the eurozone if the UK were to leave the EU.
Monday’s euro zone inflation data is being closely scrutinised ahead of next month’s European Central Bank policy meeting, at which it’s increasingly expected the bank will announce further measures to boost demand and stimulate growth in the eurozone.
AUD holding close to strongest levels against USD
Australia’s dollar was holding close to its strongest level versus its US counterpart since the start of 2016, ahead of Tuesday’s interest rate decision from the Reserve Bank of Australia. Economists expect the RBA to leave rates on hold but the bank has previously indicated there is room for further easing if required. Against the pound, the Australian dollar is trading at its best level since April 2015.
Enjoy your week.