USD: As last weekend neared there was much excitement about the updated NAFTA deal. Confirmation of its eventual signing, under the new name of USMCA was good news for the greenback as well as the Canadian dollar and Mexican peso. USD edged higher in the Far East after it was announce for a 0.2% net gain against the EUR. In most circumstances a 59.8 reading from ISM's purchasing managers' index would be cause for at least modest celebration but manufacturing PMI was a point and a half lower on the month and half a point below forecast and the dollar lost ground to the JPY. In general, it was a good week for the dollar and it remained king towards the end of the week as any inkling of a bounce in the pound fell back to a September low after 10-year US yields rose to the highest point in seven years, with 30-year Treasury bond reaching its highest level since October 2014. Federal Reserve Chairman Jerome Powell said that he could see the Fed raising interest rates beyond that of the ‘neutral’ level. The 10-year rate is of significant interest given that it sets the rates for many everyday Americans looking for business and consumer loans, crucially home mortgages. Coupled with strong ADP data, the markets moved heavily into the Greenback, with GBP/USD moving back below the 1.3000 level.
EUR: The euro continued to feel the pain of Italy's coalition government and its deficit budget plan. Eurogroup finance ministers were concerned by the plan for a deficit of 2.4% of GDP in 2019. The EUR suffered on Monday when tensions were high. Despite the concerns, the Italian government did their best to quash fears with Economy Minister Giovanni Tria announcing plans to cut the budget deficit earlier than previously stated, in 2020 but the euro struggled to recover fully from the tumult.
CAD: By the time New York opened on Monday the USMCA trade deal was fully priced into the CAD. Investors liked what they saw and were relieved that North America would not find itself without an almost-free-trade framework. Canada's manufacturing PMI came in at 54.8 - two points lower on the month and two points short of analysts' consensus forecast. The result was a loss of 0.2% for the CAD against the USD. Whilst more gains were made by the US dollar, the Canadian dollar performed better than all the other G10 currencies with the exception of sterling during the week.
GBP: Second quarter GDP growth was unchanged in the UK but the Q1 growth was revised down from 1.6% to 0.4%. Britain's manufacturing PMI beat forecast at 53.8 and together with an unexpected increase in monthly mortgage approvals, the PMI reading was positive for the GBP. The big news came from the Conservative Party Conference and the pound danced its way to a 10-day high versus the euro off the back of PM Theresa May’s well-received speech. Ireland’s support for her Customs Plan also helped pop the pound back up to the top, with this intervention seen as a serious sign of support ahead of the crucial EU Summit on October 18th.
JPY: While the US was riding high on the results of 10-year bond yields, the fact that the Japanese 10 year yield rose 2 basis points in Japan put new pressure on the Bank of Japan (BOJ). The advance will test the Bank of Japan’s newly-adopted objective to allow the benchmark to fluctuate more before it steps in to intervene. The BOJ is under increased pressure to scale back its current monetary policy as global counterparts, especially the Federal Reserve, turn more hawkish. If the authority does change their approach on yields, it could cause changes in the yen so the results yesterday were approached with some caution. Financial markets will be watching closely to find out how the BOJ will respond.