ETHICAL CURRENCY DAILY BRIEF
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Daily Brief - 14/12/2017
Reuters: Sterling edged higher on Wednesday ahead of the next day’s Bank of England policy meeting, which will be closely watched for clues on the future path of UK monetary policy. While the BoE is widely expected to keep interest rates on hold at 0.5 percent on Thursday, after raising rates for the first time since 2007 last month, there are questions over whether rates will be hiked again next year - and if so, at what pace.
The Bank said in November that inflation was near its peak and would then fall slowly over the next three years to just above 2 percent. It also said a long-awaited pick-up in wage growth was likely next year. But inflation data released on Tuesday exceeded expectations, coming in at 3.1 percent annually - more than 1 percent above the BoE’s 2 percent target. “The BoE meeting tomorrow is possibly pivotal if (Governor Mark)Carney can ... take a more hawkish stance and wax hawkish on the inflationary risks if sterling falls further,” said Saxo Bank strategist John Hardy.
Reuters: The dollar remained on the defensive on Thursday, having tumbled after the Federal Reserve raised interest rates as expected, but left its rate outlook for the coming years unchanged. There was limited reaction among major currencies after China raised interest rates marginally, in the wake of the Fed’s move. The dollar index, which tracks the greenback against a basket of six major currencies, eased 0.1 percent to 93.372 .DXY after falling 0.7 percent on Wednesday.
The Fed raised key short-term rates by a quarter point to a range of 1.25-1.50 percent on Wednesday. The Fed projected three more hikes in both 2018 and 2019, unchanged from the last round of forecasts in September. Traders and analysts said the dollar came under pressure after the Fed’s policy announcement as the U.S. central bank kept its interest rate projections steady rather than revising them higher. Some market participants had speculated the Fed could raise its interest rate projection for next year to four rate hikes, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
South African Rand
BD Live: The rand cheered the stinging rebuke President Jacob Zuma received in court on Wednesday by strengthening from R13.72/$ to R13.43/$, and held under R13.50/$ on Thursday morning despite the US central bank raising interest rates. The rand was at R13.47/$, R15.94/€ and R18.10/£ at 6.30am.
The rand’s "Ramaphosa rally" resumed as Zuma’s three legal defeats this week raised Cyril Ramaphosa’s chances of beating Nkosazana Dlamini-Zuma at the election for a new ANC president, at the party’s conference that starts on Friday. The rand held on to most of its gains in the face of the US Federal Reserve Bank raising the upper bound of its interest rate target range to 1.5% from 1.25% on Wednesday night as expected.
Reuters: The euro edged up 0.1 percent to $1.1836, having climbed 0.7 percent on Wednesday. Later on Thursday, investors will turn their focus to monetary policy decisions by the European Central Bank and the Bank of England.
The ECB is seen likely to keep interest rates steady and reaffirm its existing monetary policy stance, after having decided in October to halve bond buys to 30 billion euros a month from January.
Daily Brief - 14/12/2017
Hong Kong Office
FXStreet: The Pound had a very mixed session on Wednesday ahead of a key Parliamentary vote that would require the Prime Minister to write the terms of her Brexit deal into a law that would have to be passed by Parliament. It has been announced that Prime Minister Theresa May suffered a defeat with 12 of her own backbenchers joining with Opposition MP’s to defeat the Conservative/DUP Coalition Government.
The latest UK economic data had something for everyone but on balance were a bit disappointing. The total jobless number fell by 26,000 in the last 3 months to 1.43m, taking the unemployment rate down to a 42-year low of just 4.2%. But, the total number of people in work fell by 56,000 in the last quarter; the biggest drop in more than 2 years. The simultaneous fall in employment and unemployment is possible because there has been a large increase (115,000 over the quarter) in the number of economically inactive. As for wages, the 3-month average measure of total pay rose to 2.5% but is still below the rate of inflation.
Ahead of the FOMC Statement, the pound rose against the USD and CAD, but fell once more against the Australian and New Zealand Dollars. With the USD generally in retreat after the Fed, GBP/USD extended its gains to 1.3410, though the Pound fell further against the relatively buoyant Australian and New Zealand Dollars. GBP opens this morning at USD1.3410 with GBP/AUD at 1.7565 and GBP/NZD1.9085.
Reuters: The dollar nursed its losses in early Asian trade on Thursday, having tumbled after the Federal Reserve raised interest rates in a widely expected move, but left its rate outlook for the coming years unchanged. The dollar index, which tracks the greenback against a basket of six major currencies, held steady at 93.444, after tumbling in the wake of the Fed’s policy announcement and falling 0.7 percent on Wednesday.
The Fed raised key short-term rates by a quarter point to a range of 1.25-1.50 percent on Wednesday, as widely expected. The Fed projected three more hikes in both 2018 and 2019 before a long-run level of 2.8 percent is reached. That is unchanged from the last round of forecasts in September. Fed officials acknowledged in their latest forecasts that the economy had gained momentum in 2017 by raising their economic growth forecasts and lowering the expected unemployment rate for the coming years.
Against the yen, the dollar inched up 0.2 percent to 112.76 yen, after sliding 0.9 percent on Wednesday and having retreated from Tuesday’s four-week high of 113.75 yen. The euro edged up 0.1 percent to $1.1830, having climbed 0.7 percent on Wednesday.
FXStreet: The post-Fed decline in the USD/JPY to 112.46 confirmed a bearish doji reversal on the daily chart. It indicates the rally from the low of 110.84 (Nov. 27 low) has made a top at 113.75 (Dec. 12 high). As of writing, the spot is trading slightly higher at 112.65 levels. The slight recovery could be associated with the recovery in the US 10-year treasury yield from the post-Fed low of 2.34 percent to 2.36 percent.
Jim Langlands from FX Charts prefers selling into rallies to 113.00 levels. Langlands writes, "although the daily charts are neutral, the short-term momentum indicators look heavy on Thursday, and further downside momentum could now take the dollar back to the recent low of 111.97. I am neutral today and direction are likely to be driven through the crosses following the various CB meetings ahead of the US Retail Sales. Selling rallies towards 113.00 currently seems the plan."
Reuters: Asian stocks edged higher on Thursday after the Federal Reserve delivered a much-anticipated interest rate hike but flagged caution about inflation, tempering expectations for future tightening, which weighed on the dollar and Treasury yields. As widely expected, the Fed raised rates for the third time this year on Wednesday while sticking to its projection for three rate increases next year.
The Fed’s less hawkish statements supported MSCI’s broadest index of Asia-Pacific shares outside Japan, which rose 0.3 percent. Australian stocks added 0.2 percent and South Korea's KOSPI climbed 0.55 percent. Japan's Nikkei inched up 0.1 percent.
In commodities, U.S. crude futures rose 0.35 percent to $56.81, lifted by the weaker dollar. Oil prices had slipped for a second straight day on Wednesday, as a slump in U.S. crude stockpiles was offset by a larger-than-forecast rise in gasoline inventories and as U.S. crude output continued to grow to record highs.