ETHICAL CURRENCY DAILY BRIEF
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Daily Brief - 19/02/2018
Reuters: The pound fell on Friday against a stronger dollar but rose versus the euro, with traders watching for any positive signs from a visit to Berlin by Prime Minister Theresa May. May is visiting German leader Angela Merkel, hoping to make progress on overcoming a near-deadlock on agreeing the terms of Britain’s exit from the EU next year. The British prime minister said she wanted a Brexit deal that was good for companies in Britain and the rest of the European Union after meeting with Merkel.
Against the euro, sterling did not move after May’s comments and remained up 0.2 percent at 88.53 pence per euro amid broader weakness for the single currency. Rabobank analysts that there appeared to still be “sizeable distance between the two negotiating bodies regarding the Brexit transitions phase and the final arrangements regarding trade.” That political uncertainty would weigh on the pound, the bank predicted, and it was targeting a level of 90 pence per euro on a six month horizon. Against the dollar, the British currency fell 0.4 percent to $1.4048 after trading as high as $1.4145 in Asian trading, with analysts saying most of Friday’s sterling weakness was driven by a recovery by the dollar after a poor week for the U.S. currency.
Reuters: The dollar found some traction on Monday following last week’s steep fall and managed to hold above a three-year low against a basket of currencies. The dollar index against a group of six major peers .DXY was mostly steady at 89.045 after enjoying a modest bounce on Friday following its descent to 88.253, its lowest since December 2014. The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy.
Confidence in the dollar has also been shaken by mounting worries over the U.S. budget deficit which is projected to balloon to $1 trillion in 2019 amid a government spending splurge and large corporate tax cuts. While these negative factors were not expected to go away any time soon, last week’s downturn was so rapid that some buyers were seen to have waded in to pick up the greenback at perceived bargains.
South African Rand
BD Live: The rand lost a bit of momentum on Friday afternoon, as the dollar regained some lost ground against a basket of currencies following a bruising week. However, the local currency was still poised to record back-to-back weekly gains after an eventful few days, which culminated in the swearing-in of Cyril Ramaphosa as the new head of state, replacing Jacob Zuma, who finally bowed to pressure to resign on Wednesday. The stronger rand helps keep a lid on inflation, which the Reserve Bank expects to average 4.9% in 2018. The stronger currency is also a result of international oil prices moderating after touching their best levels since 2014 at the beginning of the year.
FXTM global head of currency strategy Jameel Ahmad said the rand’s advance against the G10 basket of currencies showed that it benefited from the positive sentiment towards the country, after scandal-tainted Zuma was forced out of office. Investec economist Annabel Bishop still sees further momentum in the rand if SA can successfully navigate its way through the budget, which Finance Minister Malusi Gigaba is expected to table next week. Gigaba will have his work out cut out for him in trying to balance an array of competing interests, given the current fiscal constraints. The country has projected a budget deficit of R50.8bn in the 2017-18 financial year.
The budget will help inform Moody’s ratings review on the country, the result of which is set to follow shortly after the budget. "The good gains the rand has made could be extended towards R11.55 to the dollar, and move towards R11, barring any further credit rating downgrades for SA and a credit-positive budget," Bishop said in an e-mailed note. At 3.18pm, the rand was at R11.6558 to the dollar from R11.6163, at R14.5368 to the euro from R14.5277, and at R16.3673 to the pound from R16.3784. The euro was at $1.2472 from $1.2504.
Reuters: The euro was nearly flat at $1.2423. The common currency surged to a three-year high of $1.2556 on Friday before slipping to post a loss of 0.7 percent.
The euro’s strength has played a large role in weakening the dollar this year. Focus was on economic indicators due this week, such as Wednesday’s euro zone purchasing managers’ index and Friday’s German gross domestic product numbers, and whether they could propel the common currency higher again.
Daily Brief - 15/02/2018
Hong Kong Office
FXStreet: GBP/USD is now trading around 1.4002, in late New York session, with the pair soaring by over 0.80% and hovering around its daily high on a plunge in the greenback amid muted retail sales and subsequent series of GDP downgrade for the US. Although US CPI came upbeat today, retail sales came subdued. As a result, Atlanta Fed and several other institutions have lowered their Q1 US GDP´s projections on weak consumer spending or private consumption and the USD was doomed across the board. Higher US bond yields after upbeat CPI today may be also a big headwind for USD on risk aversion as it bound to affect the stock market eventually.
Earlier at EU session, GBP/USD was under pressure and edged down by almost 0.15% on IMF’s concern of Brexit uncertainty´s effects on the UK’s economic growth. The IMF estimated the UK GDP at 1.6% for 2018 and CPI at 2.6% by Dec’18, but in the medium-term GDP may slow down to 1.5% under baseline assumption of continued progress in Brexit talks; UK outlook depends crucially on the outcome of negotiations with the EU. In another report, a BOE agent projected that UK´s activity growth will be steady but at a modest pace. It also noted that UK services firms report a pickup in growth, good exports volumes strengthened, construction output growth had continued to slow, recruitment difficulties had remained at an elevated level and pay growth had picked up; investment intentions remain positive but mainly reflected investment to maintain business activity.
Reuters: The dollar extended its losses against the yen and hit a fresh 15-month low on Thursday, with market participants bracing for further near-term weakness in the U.S. currency. The dollar dropped below Wednesday’s nadir of 106.725 yen and fell as low as 106.42 yen, its weakest level since November 2016. That marked a drop of 3.7 percent from its early February peak near 110.50 yen. The U.S. currency later pared some of its losses and was last down 0.3 percent at 106.67 yen.
”There’s nothing specific, it’s just a continuation of dollar selling that we’ve seen everywhere overnight, said Tareck Horchani, head of sales trading in Asia Pacific for Saxo Markets in Singapore. Traders and analysts said the next support level for the dollar was around 105 yen. Some market participants said speculative buying of the yen initially helped drag the dollar lower, with stop-loss dollar selling later adding to the fall against the Japanese currency.
FXStreet: The technical recovery in the USD/JPY pair fell apart at 106.89 as the Japanese Yen picked up a bid after Japanese Finance Minister Asoplayed down the need for FX intervention. Speculation has been gathering pace that Yen appreciation may not go down well with the authorities in Tokyo. However, Aso's comments indicate the policymakers are comfortable with the recent appreciation of the Japanese Yen. So, for the time being, the JPY bulls have little reason to fear. That said, the technical charts show oversold conditions. The daily RSI has hit the oversold territory. Further, risk reversals have diverged from the spot, indicating a drop in the premium claimed by JPY calls (bullish bets) over JPY puts (bearish bets).
Also, the 10-year treasury yield continues to rise and more importantly the US stock market has remained resilient. Hence, caution is the name of the game for the JPY bulls. As of writing, the pair was trading at 106.63. FXStreet Chief Analyst Valeria Bednarik writes, "the pair retains its bearish bias, as in the 4 hours chart, the pair is further below its 100 and 200 SMAs, both accelerating their declines, while technical indicators consolidate near oversold readings, with no clear directional strength. Renewed selling pressure below 106.80 should open doors for a steeper decline toward the 106.00 region during the upcoming sessions."
Reuters: Asian stocks gained on Thursday after Wall Street brushed aside strong U.S. inflation data and surged, in a move that also saw the dollar pinned at two-week lows even as Treasury yields jumped in anticipation of more rapid U.S. interest rate hikes. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1 percent. Australian stocks climbed 0.9 percent and South Korea’s KOSPI added 1.1 percent. Japan’s Nikkei advanced 1.3 percent following three successive days of losses that took it to a four-month low the previous day.
In commodities, Brent crude futures were up 0.75 percent at $64.84 per barrel after prices surged the previous day as U.S. crude stocks rose less than expected and Saudi Energy Minister Khalid al-Falih said major oil producers would prefer tighter markets than end supply cuts too early. Crude also benefited from the dollar’s weakness. Oil tends to move inversely to the dollar, and has also of late been trading in tandem with stocks.