DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

21 / 07 / 17

LONDON OFFICE

 

British Pound

Reuters: The pound rose above $1.31 to 10-month highs earlier this week as the dollar fell across the board, and as investors bet the 25-basis-point cut in British interest rates after last year's vote for Brexit could be reversed in the coming months. But BoE policymakers have made it clear that any monetary tightening will be data-dependent.

 

Thursday's retail sales numbers showed sales rose 2.9 percent in June compared with a year earlier, and 0.6 percent on the month - both beating forecasts in a Reuters poll.

 

Euro

Reuters:  Sterling skidded to an eight-month low against the euro on Thursday, trading close to 90 pence after the head of the European Central Bank said possible changes to policy would be discussed in the autumn. Though Mario Draghi said no date had been set for discussing any changes to the programme and that ECB rate-setters had been unanimous in their decision not to change their guidance an monetary policy, investors reckoned discussions in the autumn would lead to monetary tightening next year.

 

The euro jumped as much as 1.5 percent against the pound EURGBP=D3, touching 89.765 pence, its strongest since early November. "Traders may have found that Draghi's comments were less dovish than anticipated, despite his emphasis on the continued need for significant stimulus and on subdued underlying inflation," said Caxfon FX anaylst Alexandra Russell-Oliver. "Ultimately, the expected winding down of stimulus will likely continue to be supportive of the euro."

 

South African Rand

BD Live: The rand weakened against hard currencies on Thursday afternoon, after the Reserve Bank unexpectedly cut the repo rate by 25 basis points. After hovering at the R12.96 to the dollar level shortly before the announcement, the rand weakened to R13. At 3.51pm the rand was at R13.0403 to the dollar from Wednesday’s R12.9174‚ at R15.0846 to the euro from R14.8747 and at R16.9128 to the pound from R16.8229. The euro was at $1.1567 from $1.1515.

 

Reserve Bank governor Lesetja Kganyago said inflationary risks persisted despite a concerning economic outlook and low business confidence. Four monetary policy committee (MPC) members supported the cut, while two voted to keep the rate unchanged. Kganyago cited recent examples of policy uncertainty from the state — such as the revised Mining Charter, which has since been put on hold — as risks to the economic outlook in the foreseeable future.

 

US Dollar

Reuters: The dollar fell to its lowest level in nearly two years against the euro on Thursday after European Central Bank chief Mario Draghi said policymakers would discuss possible changes to its bond-buying scheme in the autumn. Though Draghi said no date had been set for discussing any changes to the program and that ECB rate-setters had been unanimous in their decision not to change their guidance on monetary policy, investors suspected discussions in the autumn would lead to monetary tightening next year.

 

The dollar index, which measures the greenback against a basket of six major rivals, hit a session low of 94.090 .DXY, marking its lowest level in nearly a year. The index pared some losses in afternoon U.S. trading and was last down 0.5 percent at 94.286.

HONG KONG OFFICE

 

Euro

FXStreet: There's no stopping the euro now that European Central Bank President Mario Draghi made it clear that his concerns for low inflation are limited. While the central bank head said measures of underlying inflation remain low, he also indicated that core inflation will rise over the medium term as stimulus pass through supports demand and favorable financing conditions help investment. 


Their survey results show a solid, broad based recovery that allows investors to look past the central bank's warning that they could boost the size and duration of QE if needed. The ECB is encouraged by the performance of the economy, not particularly concerned about the rise in the currency and plans to make a decision about their QE program in Autumn. Although Draghi said tapering scenarios were not discussed at this meeting and they didn't talk about what will happen in September, the ECB's tease about discussing tweaking stimulus sometime between September and November was enough to satisfy euro bulls. 


EUR/USD climbed to its strongest level in 23 monthsand it should only be a matter of time before it breaks the 2-year high of 1.1714.  A move to 1.18 is inevitable as long as ECB officials don't jawbone the currency but 1.20 would require strong PMIs

 

US Dollar

Reuters: The dollar headed for weekly losses on Friday, wallowing at its lowest levels against the euro in nearly two years after European Central Bank chief Mario Draghi said policymakers would discuss changing its bond-buying programme in the autumn. 


The dollar index, which tracks the greenback against a basket of six major rivals, was flat on the day at 94.316, not far from its overnight low of 94.090, its deepest nadir since August 2016. It was down 0.8 percent for the week. The euro caught its breath at $1.1625 after climbing as high as $1.1659 on Thursday, its loftiest peak since August 2015. The dollar was nearly flat on the day against the yen at 111.92, after touching an overnight low of 111.48, its lowest since June 27. It was on track to shed 0.5 percent for the week. 


Concerns over low inflation will likely keep the Federal Reserve from raising U.S. rates at its policy meeting next week, analysts said. Fed Chair Janet Yellen signalled caution in her congressional testimony last week, with disappointing U.S. inflation and retail sales data a week ago adding to evidence that the central bank has reason to take its time in tightening. U.S. President Donald Trump's failure to garner enough support for his healthcare bills in the Senate this week also weighed on the dollar, as it raised fears about the likelihood of passing his stimulus and tax reform agendas. 

 

Australian Dollar

FXStreet: The AUD/USD pair advanced up to 0.7986 this Thursday, a fresh over two-year high, but closed the day unchanged around the 0.7960 level. Australian employment figures released at the beginning of the day came in-line with market's expectations, as  the unemployment rate surged to  5.6% in June while the economy added 14,000 new jobs, slightly below the 15,000 expected. Breaking down this last number, full-time jobs rose by 62,000, but part-time employment plunged by 48,000. 


The pair eased from the mentioned high as the greenback rose following BOJ's announcement, but following the ECB's monetary policy meeting, the American currency resumed its slide. During the upcoming Asian session, RBA Assist Gov Debelle will offer a speech in where monetary policy could be discussed. 


In the meantime, the risk for the pair is towards the upside, despite the lack of upward momentum, as in the 4 hours chart, the pair bounced strongly from a bullish 20 SMA, currently offering a dynamic support at 0.7910, while the RSI indicator remains flat at overbought territory. The Momentum indicator, however, heads lower near its 100 line, barely holding within positive territory.

 

Global Markets

Reuters: The euro held near two-year highs against the dollar on Friday after the head of the European Central Bank said tapering of its stimulus will be on the table this autumn, while a solid global economic outlook kept Asian share prices near decade highs. 


MSCI's broadest index of Asia-Pacific shares outside Japan, which has gained about 5 percent in the past two weeks, eased 0.1 percent as regional markets opened. Japan's Nikkei dropped 0.3 percent as the yen rose against the dollar. 


In commodities, oil edged up after choppy trading the previous day, as nagging worries about abundant global crude supplies sank prices after an early rally had boosted Brent above $50 per barrel for the first time since June 7. Traders predicted prices would hold near current levels ahead of Monday's meeting between key OPEC and non-OPEC producers in St. Petersburg, Russia. Brent crude futures gained 0.2 percent to $49.39 per barrel.