Saturday, 25 March 2017
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Euro Weekly Update

If politics was the main driver for currencies at the end of last week, then it most certainly was again throughout the past five days. Wherever you were this week everyone had one eye on the US presidential election. It was an all but a steady introduction to the week for Europe; Germany reported a -0.6% monthly fall in factory orders while, for Euroland as a whole, retail sales were down by -0.2% and investor confidence improved by four and a half points to 13.1. Swiss inflation was steady at -0.2% and the Swiss National Bank's foreign currency reserves increased from SFr628bn to SFr630bn: they go up every month as a result of the SNB's interventions to sell the franc.

On Wednesday morning soundwaves of the US Presidential election result rippled around the world. It would be fair to say the initial reaction to the Trump presidency was that of disbelief, which included selling equities, selling commodity-related and emerging-market currencies and buying sandbags. Nobody knows quite what a Trump presidency will mean for the global economy, let alone for currency and capital markets, but many fear it will have negative implications, just as they did following the Brexit vote.

Although sterling was left behind in the initial post-election turmoil it regained its poise later on the Wednesday. Over the two days surrounding the vote sterling was, against the odds, the leader among the major currencies with an average gain of 0.8%. It is also the top performer over the last seven days. It is not clear how the pound came to achieve this feat. One suggestion is that Donald Trump's unexpected win has overshadowed the Brexit risk. Another is that anti-establishment votes in Britain and the States might be mirrored in Euroland when the electorates in Italy, France and Germany have their say in coming months.

On the whole it was an average week for the euro in that, on average, it was unchanged against the other dozen most actively-traded currencies. Otherwise it was a far from average week. Donald Trump's unexpected victory in the US presidential election set financial markets alight; first with a rush to offload risk then with a stampede in the other direction as it dawned on investors that Mr Trump's promised infrastructure investments and tax cuts could be good for corporate America.

The euro was hurt by the realisation that anti-establishment votes in Britain and the States could be mirrored in Italy, France and even Germany in coming months. The pound was helped by the realisation that Brexit is no longer the year's biggest black swan. Sterling was the major-currency winner for a second week, adding nearly three and a half euro cents. The euro lost one and three quarter US cents.

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