GBP
The Pound Sterling encountered further headwinds in the FX markets, weakening against the majority of currencies. This includes a 1.13% depreciation against the euro and a 0.52% loss against the US dollar. It appears as though the Bank of England’s Governor Bailey has softened expectations of an exchange rate hike, in the midst of the Ukrainian turmoil. This appears to be having an adverse impact on the pound.
On the data front, GDP growth came in at 1.3% in Q4. This reading exceeded market expectations, of a 1.0% rise, adding to the 0.90% growth in Q3. Additionally, the U.K’s current account deficit shrank to £7.3 billion in Q4, from a reading of £28.9 billion in the previous quarter.
This week, there is minimal data to be released from the U.K. Nevertheless, the Balance of Trade for February will come due, along with updated figures for Manufacturing & Industrial Production.
USD
The positive economic data which came out of the US last week has helped to signal strength in the US economy. The Unemployment Rate fell to 3.6% in March, from 3.8% in the month prior. Additionally, the ADP report indicated that another 455 000 new jobs were added to the US economy, and there are now a record 5 million more job openings than unemployed people in the U.S.
Despite encouraging economic data, released last week, the greenback yielded a mixed performance as the Dollar Index (DXY) edged 0.16% lower. The USD strengthened marginally against the AUD, CAD, and JPY, with its’ most significant upside move made against the NZD and GBP (0.53%). The dollar also lost 0.62% and 0.61%, against the EUR and CHF, respectively.
This week there is less to write home about, with regards to US data. Nevertheless, Balance of Trade figures will be released in February. The US trade balance is forecast to come in at $88 billion, down from $89.7 billion in January. This is expected to come about as the result of both a $0.6 billion increase in exports and a $1.1 billion decline in imports.
EUR
Significant volatility was observed on the EUR/USD and EUR/ZAR pair this week. However, an overall strengthening of the EUR against the GBP was seen as negative sentiment starts to abate and monetary policy starts to react to data being released.
Negative sentiment due to the war on Ukraine seems to have eased a bit this week due to ongoing talks with Russia. While Ukraine representatives have stated that they are willing to discuss neutrality (no NATO membership) in exchange for security guarantees from other European powers, they have also reiterated their skepticism on the Russian military downscaling.
Inflation remained the biggest driver of the EUR’s movement this week. It is telling to note that Germany, one of the biggest EU members recorded inflation at 7.3 % (the highest since 1981). Meanwhile, inflation for the Euro Area as a whole shot up to 7.5% (All time highest). Inflation continues to erode the spending power of the region and will be a major ceiling for the local currency going forward.
ZAR
The Rand was not able to further its winning streak in the forex markets last week, and the EM currency appears to have lost its recent momentum. GBP/ZAR appreciated by 0.25%, closing off the week at R19.21, while USD/ZAR moved 0.70% higher. After opening the week at R14.55, the Rand ended the week at R14.65 against the greenback.
While the rand ended in the red against most major currencies, its most notable move was against the EUR. With the euro finding its footing again, the EUR/ZAR pair made a 1.43% move to the upside. The rand closed at R16.20 against the EUR, after kicking off the week at R16.0.
Last week saw the release of a variety of South African economic data. The SA Unemployment Rate for Q4 of 2021 was released, rising up to 35.3%, in line with expectations, from a previous reading of 34.9%. Unemployed persons rose by 300 000, from 7.6 million to 7.9 million.
South Africa’s Balance of Trade skyrocketed in February, as the country’s trade surplus came in at R10.6 billion. The significant rise up, from a surplus of R4.07 billion in January, highlights the recent demand surge in SA exports. This helps to tie in the recent strengthening of the ZAR with real economic data, further explaining the recent strength in the Rand.
This week will yield less significant South African data, with little other than Manufacturing data scheduled for release.
AUD
The AUD lost some momentum last week as commodity prices stabilized and the uncertainty around the Ukraine conflict starts to abate. Volatility on the AUD/USD pair has been significant in the past week due to inflation pressure and monetary policy developments in the US. The AUD did not fare much better against JPY (closing at 91.06 on Friday after opening at 92.76On Tuesday).
On the data front, we saw a significant increase in retail sales (1.8% from an expected 1%) as consumers are not deterred by the inflation increase of 0.8 % (up from 0.5% the previous month). From this, it is evident that through being a net exporter of commodities, Australia is able to sidestep much of the supply-driven inflation and thereby maintaining consumer confidence.
In the week ahead, investors will lookout for the country’s balance of trade data in order to gauge the impact of increased commodities prices on the country’s foreign exchange reserves and income
NZD
The NZD traded mainly mixed in the past week. The currency was stronger against the USD (opening at 0.689 on Tuesday and closing at 0.691 on Friday) and AUD while trading weaker against the JPY and CHF.
Not much has been reported on the data front. The only points of interest have been an increase in business confidence and a fall in consumer confidence (77.9 from 81.7 in March) as inflation continues to hamper economic activity.
Looking at the week ahead, the only significant data released will be the electronic card spending data. It is expected that a fall in electronic payments will be experienced, mainly driven by weaker consumer confidence and higher inflation.
