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Currency Markets

Source: Bloomberg
Sterling depreciated against all major currencies on Brexit uncertainty and a Tory party leadership contest

World Currency Markets

• On May 21 the Reserve Bank of Australia released dovish meeting minutes which set forth two scenarios where a cut to the benchmark interest rate would be appropriate. First, if there was no further improvement in the labour market and second, if the unemployment rate rose and inflation stayed low. Governor Lowe later doubled down in his speech following the minutes and said that a rate cut would be considered in June and that the unemployment rate needs to fall below five percent to help inflation return to target. The Australian dollar depreciated 1.6 percent against the US dollar over the month on the central bank’s dovish stance and trade tensions.

• On May 31 the Mexican peso depreciated 2.5 percent to 19.6172 per US dollar after US President Trump rattled markets by vowing to impose five percent tariffs on Mexican goods unless Mexico can stem the flow of migrants across the boarder. In response, Mexico’s President Andres Manuel Lopez Obrador sent a delegation to Washington for talks aimed at averting the move.

• On June 12 the Hong Kong dollar appreciated 0.2 percent against the US dollar as interbank interest rates rose after thousands of protesters blocked major roads in the city. The protesters vowed to stay until the government withdraws controversial legislation that would for the first time allow extraditions.

to China. Clashes were reported and police used tear gas and rubber bullets to control what they called a “riot situation.” Both the extradition plan and the unrest spooked market participants and stocks, as measured by the Hang Seng index, fell 1.7 percent on the day amid concern about capital outflows.

• On June 18 ECB President Mario Draghi appeared to set a low bar for action when he said additional stimulus will be needed “in the absence of any improvement” to the outlook for growth and inflation. He specifically cited interest rate reductions as an option. Draghi’s comments depreciated the euro 0.2 percent against the US dollar on the day and prompted money markets to price in a ten basis point interest rate cut by December 2019.

• On June 21 the US dollar closed the week weaker against all Group of 10 (G10) peers as traders continued to digest indications that almost half of Fed policy makers expect an interest rate cut by year end. In the week the Bloomberg dollar index dropped 1.25 percent, the most since February 2018.

• On June 24 Bitcoin surged to $11,251.21 and traded above $11,000 for the first time in 15 months. Some analysts said Facebook Inc.’s Libra was leading to renewed interest in cryptocurrencies. Gold, the old-fashioned currency, also did well and traded above $1,400 an ounce.