Euro runs for cover

Commentary by Moneycorp

EUR

If the previous week was difficult for the euro, the one just ended was a nightmare.  It lost one and three quarter US cents and fell by two and a half cents against sterling. And that was the good bit; the euro also lost 18 (eighteen) Swiss cents.

On Thursday the Swiss National Bank brought to an end its three-year defence of a SFr1.20 to €1 floor. It did so presumably because the analysts in Bern are as convinced as everyone else that the European Central Bank is about to grasp the nettle of Quantitative Easing and start printing money.

With deflation taking hold in Euroland and agreement ‘in principle’ from the European Court, the best guess is that the ECB will announce a QE programme on Thursday. If it does, and if the scale of the scheme does not disappoint, the euro is likely to continue its downward path.

USD

The previous week’s nine-year high against the euro was followed last week by an 11-year high for the dollar. It lost ground to sterling though, falling by three quarters of a cent.

It was not that the dollar had a particularly bad week, more that sterling had a better one and the euro a bad one.  Last Friday’s US employment data handsomely exceeded expectations, especially when upward revisions to earlier months were taken into consideration. The weak spot was retail sales, which were down in December by   -0.9% from the same month in 2013.

The outstanding currency event of the week was the ending of the Swiss National Bank’s three-year-long support of the euro at SFr1.20 = €1 on Thursday. It allowed the franc to leap to a three-year high against the dollar and sent the euro’s supporters running for cover.

CAD

An uncomfortable week for the Loonie cost it one US cent. It was down by three cents against sterling, which staged a modest recovery.

The Canadian economic data were of no help whatsoever. Where last Friday’s US employment figures were really quite good, the loss of 4k Canadian jobs and a downward tick in the participation rate from 66% to 65.9% were less than useful.  Housing starts were disappointing too, declining in December instead of delivering the expected increase.

The outstanding currency event of the week was the ending of the Swiss National Bank’s three-year-long support of the euro at SFr1.20 = €1 on Thursday. It allowed the franc to leap to a three-year high against the Canadian dollar and sent the euro’s supporters running for cover. The Loonie added half a cent against the euro.

AUD

The Australian dollar had a successful week. It strengthened by a cent and a quarter against sterling and picked up one US cent. Most of the Australian economic data were unimpressive. Retail sales in November were up by just 0.1% on the month. Mortgage lending to householders and buy-to-let investors unexpectedly fell.  But the employment figures looked good, with 37k more people in work and a 42k jump in full-time employment. The Australian jobs numbers do tend to be erratic; it would be no great surprise if the data for January were flat. But investors liked what they saw and bought the Aussie.

The outstanding currency event of the week was the ending of the Swiss National Bank’s three-year-long support of the euro at SFr1.20 = €1 on Thursday. It allowed the franc to leap to a six-year high against the Australian dollar and sent the euro’s supporters running for cover.

Clarisse Musselwhite is Moneycorp’s Account Manager for Mallorca
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Email:mallorca@moneycorp.com