In this week’s weekly wrap currency strength analysis, riskier assets effortlessly took the top spot with the safe-haven currencies relegated to the red zone. Covid 19 news and economic data still the main driver.
Supported by risk-on sentiments and industrial metals Australian dollar emerged top performer followed by the sterling pound and then other g7 currencies.
On the other hand, the Japanese yen and Swiss franc ended the week as the worst performers. Even though weaker, the euro and the US dollar performed better than the yen and swiss.
The Fundamentals
Covid 19 News
Covid 19 news still haunts g7 financial market trading. As the world continues to battle the pandemic, emerging variants threaten progress. Cases of Britain, Brazilian, and South Africa’s covid 19 variants are shocking. These variants spread faster and result in higher death rates.
According to the World Health Organization (WHO), global infections dropped by 16%, thanks to the continuing vaccination rollouts and restriction measures. Nevertheless, infections are high and as of Sunday, global confirmed cases stood at 111m, deaths at 2,4m, and recoveries at 87m.
Despite the increasing cases especially in Europe and the US, manufacturing activities picked up globally. As more people continue to receive the jab and restrictions are eased hope continues to increase. However, the increased hope is dangerous for the safe-haven currencies but good for the riskier assets.
Industrial Metals
Due to supply shortage industrial metals surged to their highest this year. Copper future’s accelerated and gained 7% over the week. It is not the only manufacturing metal that soared – Tin and Nickel also gained tremendously.
China’s strong growth and global economic recovery pushed the demand for metals higher. Covid 19 restriction also added to the mix – hindering production and supply of the metals.
China’s Robust Economy
China recorded a robust economy and the return of Chinese investors uplifted the riskier assets particularly the New Zealand and Australian dollars. These two countries currencies gained strongly despite posting poor economic data.
Economic Data
The g7 economies posted mixed economic data. Interestingly the riskier assets posted poor data but still managed to emerge as the week’s top performers. This suggests investors are more focused on the economic recovery outlook.
For instance, the Eurozone posted an impressive economic update but still trailed behind AUD, GBP, and NZD.
Geopolitics
Global politics also featured heavily in this week’s currency strength analysis. Joe Biden’s administration indicated it is open to multilateral talks with Iran specifically on the Nuclear deal, but the Iranians want the US sanctions lifted first.
The administration also distanced itself from Trump’s efforts to influence the United Nation to reimpose sanctions against Iran.
Crude Oil News Analysis
According to crude oil news analysis, oil price slumped by 1.87% to close at $59.24 per barrel, attributed to the cold temperature snap in Texas. Also, Biden’s administration’s diplomatic rekindling with Tehran led to the downfall of oil prices.
Fundamental Analysis & Economic Review of the g7 Currencies
Table: G7 performance summary.
| Currency pair | 15th Feb | 21st Feb | Average | Percentage change | remarks |
| USD | 90.470 | 90.363 | 90.577 | 0.118 | drop |
| GBP/USD | 1.3903 | 1.4028 | 1.3928 | 1.2280 | increase |
| EUR/USD | 1.2127 | 1.2126 | 1.2100 | 0.0619 | increase |
| USD/CHF | 0.8901 | 0.8962 | 0.8946 | 0.5610 | increase |
| USD/JPY | 105.36 | 105.43 | 105.67 | 0.48 | increase |
| USD/CAD | 1.2638 | 1.2610 | 1.2662 | 0.6617 | drop |
| AUD/USD | 0.7778 | 0.7869 | 0.7784 | 1.4962 | increase |
| NZD | 0.7226 | 0.7304 | 0.7230 | 1.1074 | increase |
Another Weekly Loss For The American Dollar
Despite a significant jump in the US 10- year treasury yields, the American dollar suffered yet another weekly loss, a third weekly loss in seven weeks. In the week ending 21st February, the US dollar shed off 0.13% closing the week at 90.364. In the week before it had lost 0.62% to 90.480.
While the fundamentals should have supported the US currency – because of its safe haven status – but it appears risk on mood took the upper hand. The continued covid 19 vaccination rollout and restriction measures easing in the US and many economies uplifted positive global sentiments.
On the economic data front, the US posted positively skewed economic data in the first half of the week with retail sales increasing by 5.3%. The manufacturing sector index improved from 3.5 to 12.1 and industrial production grew by 0.9%.
In the second half, economic data were mixed. Weekly jobless claims disappointed increasing from 848K to 861K and the manufacturing index dropped from 26.5 to 23.1.
Winding the week, manufacturing PMI dropped from 59.2 to 58.5 while the all-important service increased marginally from 58.3 to 58.9.And on the monetary policy upfront, the FOMC meeting resolved not to change policy until a later date.
GBPUSD Signal
In the UK, it was relatively busy on the financial calendar. According to the gbpusd signal, the pound grew by 1.21% to 1.4016 having risen by 0.83% in the previous week.
Midweek the pound received an unexpected boost from January inflation which picked from 0.6% to 0.7%, despite a 0.2% drop in consumer prices. However, at the end of the week, retail sales and core retail sales disappointed dropping by 8.2% and 8.8% respectively.
At the end of the week, Prelim private sector PMI figures uplifted the pound with service PMI rising from 39.5 to 49.7 and manufacturing settling at 54.9 from 54.1. Despite the continued covid 19 vaccination rollout, extended lockdown measures, and the new coronavirus variant pulled down the pound.
EURUSD Analysis
It was also relatively busy in the Eurozone on the economic calendar. Eurusd analysis indicates that the euro performed dismally dropping by 0.01% to 1.2119 against the dollar reversing a previous rally of 0.61%.
Positive economic data in the first half of the week supported the euro. Trade surplus increased from€25.8bn to €29.2bn pointing to improving trade terms. Eurozone’s and Germany’s economic sentiments supported the euro rising from 58.3 to 69.8 and 61.8 to 71.2 respectively.
GDP figures were also positive to the euro, with both the annual and quarterly figures increasing. However, a larger than expected industrial production drop severely dented the euro’s currency strength analysis, drooping by 1.6%.
In the second part of the week, the consumer confidence index in the Eurozone disappointed falling from -13.8 to -14.8. Vaccination hitches and extended restriction measures pulled the euro. Wrapping up the week, private sector PMI was in action, to support the euro.
The manufacturing PMI rose from 54.8 to 57.7 and the services PMI dropped from 45.4 to 44.7. However, despite the drop in the service PMI, the composite PMI increased from 47.9 to 48.1, uplifted by the manufacturing sector.
On the fiscal policy front, the ECB meeting minutes also uplifted Eurozone’s currency.
USD/CHF
The reduced covid 19 infection rate and the impressive pace of the continuing vaccinations pressured the swiss franc. Besides, expectations of a significant US fiscal package added to the positive mood which added more pressure to the Swiss currency.
USD/CAD
In a relatively quiet week in Canada, currency strength analysis indicated that the Canadian dollar grew by 0.64% to 1.2615. Previously, the Canadian dollar had grown by 0.47% to 1.2696.
On the financial data front. Inflationary pressure ticked upwards from 1.5% to 1.6% and core consumer prices picked by 0.6%. However, retail sales and core retail sales disappointed at the end of the week dropping by 3.4% and 4.1% respectively.
While the mixed economic data failed to support the Loonie, continued rise in crude oil prices came to its rescue.
AUD/USD The Week’s Top Performer
In a bullish week, the Aussie dollar rallied by 1.39% to close at 0.7869 against the American dollar. On the economic data front retail sales and employment figures affected Aussie currency strength analysis.
While employment figures supported the Australian dollar, retail sales figures failed to impress. The employment rate dropped from 6,6 % to 6.4% and retail sales rose slightly by 0.6%. More support for the Australian dollar came from increased prices in metals.
Removal of restriction measures, China’s monetary policy, and commencement of vaccination rollout significantly uplifted the Australian dollar.
Nz Currency
The Nz currency was in hot pursuit of the Australian dollar ending the week second to the Australian dollar rallying by 1.05% to 0.7299. The kiwi started the week badly but a 1.08% rally on Friday ensured that it closed in positive territory.
However, there was no significant economic data from the kiwi land to provide direction for its currency. Risk on sentiments due to restriction measures easings and vaccinations significantly uplifted the kiwi dollar.
Also, the general weakness of the American dollar combined with improved metal prices supported the New Zealand currency.
US Dollar Versus Japanese Yen
In the far east, Japan had a busy economic diary. Currency strength analysis indicates that the yen reduced by 0.49% to 105.45 against the U.S Dollar. Looking at the US dollar versus Japanese yen performance in the week before, the Yen rallied by 0.43% closing at 104.94.
On the financial data front, Japan’s GDP grew by 3% -better than expected – in the 4th quarter. Its yearly GDP expanded by 12.7%. However, trade figures disappointed dropping from a ¥749.6bn surplus to a ¥323.9bn deficit.
While the manufacturing sector expanded deflationary figures eased. Ravaged by the coronavirus pandemics the service sector contracted.
Conclusion
The risk-on mood throughout the week favored the riskier but more profitable assets. It also pressured heavily on the safe-haven currencies.
In the next weeks to come, covid 19 news and the expected US stimulus package will affect g7’s currency strength analysis.
Related: Foreign Currency Market News from 8th to 14th Feb, 2021
