Moving the deckchairs
Some central bankers decided to leave well alone at policy meetings during the week while a couple tinkered either with the mechanics of their programme or their guidance as to what comes next. One tinker was Kuroda San at the Bank of Japan. Instead of spending a set number of billions on asset purchases every week the BoJ will in future intervene to keep the yield on 10-year government bonds as close as possible to 0%. He has also modified the bank’s inflation target, saying he would happy if it were to exceed, rather than simply reach, 2%. The news did not discourage buyers of the yen, which was unchanged on average against the other major currencies and 1.5% higher against sterling.
Wait for it
Later the same day the Federal Reserve said it would keep the target range for its Funds Rate between 0.25% and 0.5%. Few investors had expected any other decision. As before, there is a suspicion that the Fed could make a tightening move before Christmas but there is no guarantee. Investors can fairly certain, however, that the US election makes a November hike out of the question: to raise rates shortly before the vote could be seen as politically-motivated.
The good news
The prospect of continued cheap money from the Bank of Japan and the evaporating threat of imminently higher dollar rates was positive for commodity-related currencies. The South African rand, which serves as a proxy for less-easily-tradable emerging market currencies, had another good week. It led the field on seven of the last 11 trading days, strengthening by 3.5% in a fortnight.
The bad news
Mario Draghi advised a European Parliament committee that no special favours should be shown to Britain in the Brexit negotiations. His sentiment was not a surprise but it contributed to a mood that was already negative.
The entertainment news
On Monday night in New York Hilary Clinton and Donald Trump argued with one another on TV about the future of the country. Neither of the two presidential wannabes scored a killing blow but Ms Clinton was judged to have won by a small margin. The reaction of investors was to buy emerging market and commodity-related currencies (notably the Mexican peso) and to walk away from the safe-haven euro and Swiss franc. Over the seven days the US dollar went up by 0.5% against the pound and fell by a similar proportion against the euro.
The week’s economic data did not sparkle in any direction. There was disappointment from the US residential property market and Canadian retail sales. Switzerland’s trade surplus was narrower than expected and New Zealand’s deficit was wider. The NZ dollar was unchanged on the week against sterling while the franc strengthened by 1.6%.
Another week at the bottom
Sterling’s wooden spoon collection continues to grow. Fair enough, it did share it with the NZ dollar this time but the pound is putting together a fairly ugly track record. Looking on the bright side, sterling’s average loss in the last three months is only -4.4% It lost exactly twice that much in a single week after the referendum.
Sarah, Senior Account Manager at Moneycorp
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