Towards the middle of the week, EUR-USD breached the 1.50
level for the first time since
August 2008. The final push came from US equity markets,
which reacted very positively to Morgan Stanleyâ€™s quarterly earnings in
particular. All in all, however, the euro only made moderate gains: towards the
end of the week, the common European currency was around 1.5040, about 1Â˝ US cents higher than a week ago.
On the macroeconomic side, there was little impetus. Most of
the few US data released did not fully come up to expectations.
Housing starts and building permits did not improve markedly in
September, and the number of initial jobless claims rose
slightly in the middle of October. The European indicators were more upbeat.
Most surveys for the euro area went up somewhat. According to preliminary
figures, the eurozone purchasing managersâ€™ index for the manufacturing sector
rose over the expansion threshold of 50 again for the first time. The ifo
business climate index also improved further in October, from 91.3 to 91.9. The
French figures were even better. General business confidence increased from 86
to 89. It is striking that companies are now seeing the outlook for production
in their own companies as almost neutral again. Furthermore, consumer spending
rose by over 2% in September; the third quarter therefore remained more or less
The pound sterling cavorted around again this week. The
poundâ€™s recovery, which had begun
last week after remarks made by BoE deputy governor Paul
Fisher, received additional support
from the Bank of Englandâ€™s minutes. The minutes of the
meeting at the beginning of October
revealed no intention of extending the asset purchase programme
on the one hand, and on the
other, buoyed expectations that the UK economy could revert to positive growth rates in the third quarter.
Against this backdrop, the euro dropped to about 90 pence.
The forex marketâ€™s reaction to the release of the preliminary
UK GDP data for the third quarter was correspondingly harsh. The figures
published on Friday show a further contraction in real GDP of 0.4% compared to
the previous quarter, only marginally better than the â€“0.6% in Q2. The estimate
shows that growth remained negative in nearly all sectors, including the
financial services sector. After these figures, EUR-GBP rose to almost 0.92.
Cable fell by around 3 cents to below 1.64.
The downside to dollar weakness is the appreciation of most
major currencies with the exception of the yuan and a few other currencies which are pegged to
the dollar. Growth prospects in the Asian growth regions and also in commodity countries are
much better than in most industrialized countries. The Asian countries are
benefiting from robust growth in China; other countries such as Brazil, South Africa, Australia, Norway and Canada, are relying on commodity prices recovering. This, coupled
with international investorsâ€™ growing risk appetite, is leading to high capital
inflows into these regions and to a significant appreciation of their
currencies. Thus the euro has risen by almost 8% since the beginning of this
year; but the real has appreciated by 35%, the Australian dollar by 32%, the South African rand by 27%
and the Norwegian krone by 26%. Even the Canadian dollar has gained about 16% against
the US currency.
Meanwhile, however, there is increasing resistance to
appreciation pressure. This week, the Brazilian government introduced a
transaction tax on foreign equity purchases, which could put pressure on the
real, at least in the short term. The Canadian central bank president hinted at
possible measures to weaken the Canadian dollar. And many Asian monetary
authorities are resorting to direct intervention to slow down the appreciation of
The chart below, which shows the development of foreign
currency reserves in leading Asian
countries since the end of 2008, gives some insight into
these activities. It is clear that the reserves in most of the countries have
the biggest increase â€“ 26%, followed by Hong Kong (24%)
and Thailand and Indonesia (about 20% respectively). And China and Taiwan also gained 17 and 14% respectively. In absolute terms, China is the winner with an increase of $327bn; but Korea is doing very well too with over $50bn.
Stephan Rieke +49 69 718-4114
Grabbe / Klaus NĂ¤fken
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Mon 19 Mar 2018 Tue 20 Mar 2018 AA 9:30 GB- CPI A 10:00 DE- ZEW Survey Wed 21 Mar 2018 AA 03:00 AU- Employment AA 9:30 GB- Employment A 12:30 US- Current Account AA 14:00 US- Existing Homes Sales A 14:30 US- EIA Crude A A18:00 US- Fed Rate Decision A 21:00 NZ- RBNZ Rate Decision Thu 22 Mar 2018 AA All Day flash PMIs AA 9:30 GB- Retail Sales AA 12:00 GB- Bank Of England Decision A 13:30 US- Weekly Jobless Fri 23 Mar 2018 AA 12:30 CA- CPI/Retail Sales A 12:30 US- Durable Goods A 14:00 US- New Homes Sales
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