DAILY BRIEF

 

 

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22 / 09 / 17

LONDON OFFICE

 

British Pound

Reuters: Sterling firmed against the dollar on Thursday, with traders hopeful that a much-anticipated speech from Prime Minister Theresa May the following day would signal she wants a “soft” exit for Britain from the European Union. The BBC reported on Thursday that May will say on Friday that Britain is willing to pay 20 billion euros (£17.65 billion) to the EU during a post-Brexit transition period, but only if it has access to the bloc’s single market.

 

That eased fears that she would pursue a “harder” Brexit - a complete dismantling of political and economic ties with the EU - that some in her cabinet - notably foreign minister Boris Johnson - want. Having earlier dipped to as low as $1.3471 GBP=D3, the pound climbed in afternoon trade in London, reaching as high as $1.3568 to trade 0.6 percent higher on the day. That left sterling less than a cent away from its highest levels since the results of the June 2016 Brexit referendum. Against the euro, sterling was up 0.1 percent at 88.02 pence per euro.

 

US Dollar

Reuters: The dollar buckled on Friday as tensions simmered on the Korean peninsula, though the sharp divergence between U.S. and Japanese monetary policy kept the greenback on track for a winning week against the yen. The dollar index, which tracks the U.S. unit against a basket of six major rivals, fell 0.3 percent to 92.024, still up 0.2 percent for the week and holding well above its more than 2-1/2 year nadir of 91.011 marked on Sept. 8.

 

The dollar dropped 0.6 percent to 111.83 yen, but was still up 0.9 percent for the week, in which it scaled a two-month peak of 112.725. North Korean Foreign Minister Ri Yong Ho said on Friday he believes the North could consider a hydrogen bomb test on the Pacific Ocean of an unprecedented scale, South Korea’s Yonhap news agency reported. The report followed North Korean leader Kim Jong Un’s statement on Friday that Pyongyang will consider the “highest level of hard-line countermeasure in history” against the United States in response to U.S. President Donald Trump’s threat to destroy the isolated nation.

 

“People have become very accustomed to trading the North Korea story headlines,” said Bart Wakabayashi, Tokyo Branch Manager of State Street Bank. “The dollar’s move lower was triggered by a reaction to the latest North Korea news, but there was also an element of trading strategy, as people took the opportunity to lock in their profits on a Friday before closing their books ahead of the weekend,” he said.

 

South African Rand

BD Live: The rand firmed 10c against the dollar in afternoon trade on Thursday after the Reserve Bank kept interest rates unchanged. Citing event risks, particularly those of a political nature, the Bank decided to keep rates unchanged, despite the monetary policy committee (MPC) being split on the decision, with three members favouring a cut and three wishing to keep rates unchanged. The market expected a reduction of 25 basis points in the repo rate.

 

The rand remains a key upside risk to the inflation outlook, governor Lesetja Kganyago said. "Furthermore, some of the event risks, particularly those of a political nature, were now more imminent but with no greater degree of clarity regarding the outcome," he said. The prospect of a further ratings downgrade persisted, particularly given the increased fiscal challenges and political uncertainty, he said. "However, the narrower current-account deficit and the global environment remain supportive of the rand."

 

The rand was at R13.3585 to the dollar when Kganyago started his address, but firmed to R13.30 after he made the decision known, before gaining further in the next few minutes. At 3.29pm the rand was at R13.262 to the dollar from R13.3235, at R15.7952 to the euro from R15.8481 and at R17.9055 to the pound from R17.9812.  The euro was at $1.1911 from $1.1896. While still facing economic headwinds, SA’s housing market would have benefited if the Bank had decided on another cut, said Pam Golding CEO Andrew Golding said.

 

Euro

Reuters: On Thursday, European Central Bank President Mario Draghi said monetary policy is not an appropriate tool to address financial imbalances but offered no fresh insight on the central bank’s asset purchase program.

 

The euro edged up 0.1 percent to $1.1957 and was also up 0.1 percent for the week. The market is unwinding an overly pessimistic view on U.S. rates, which is the reason that the dollar has bottomed, overall,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

HONG KONG OFFICE

 

British Pound

Reuters: Sterling firmed against the dollar on Thursday, with traders hopeful that a much-anticipated speech from Prime Minister Theresa May the following day would signal she wants a “soft” exit for Britain from the European Union. The BBC reported on Thursday that May will say on Friday that Britain is willing to pay 20 billion euros (£17.65 billion) to the EU during a post-Brexit transition period, but only if it has access to the bloc’s single market. 


Having earlier dipped to as low as $1.3471, the pound climbed in afternoon trade in London, reaching as high as $1.3568 to trade 0.6 percent higher on the day. That left sterling less than a cent away from its highest levels since the results of the June 2016 Brexit referendum. Against the euro, sterling was up 0.1 percent at 88.02 pence per euro. The pound had until the Fed statement been building on the gains of last week, when it jumped around 3.3 percent against the dollar after the Bank of England said it was likely to raise interest rates in the “coming months”. It is now heading for its first week of losses in five. 

 

US Dollar

FXStreet: During a choppy session overnight investors have continued to digest the potential implications aligned to the US Federal Reserve’s interest rate decision on Wednesday. In what initially triggered a sharp move back into the US Dollar, the world’s reserve currency has since struggled to maintain its lofty height, losing 0.1 percent when measured against several of its key counterparts. While treasuries were mixed, base metals tumbled as did a raft assets across the emerging market space. 


Acknowledging that markets are now well attuned to the idea of higher rates out of the US come December, ongoing tensions in North Korea will continue to plague risk appetite as Donald Trump ordered new sanctions on Thursday against individuals, companies and banks doing business with the country. This morning the greenback opens marginally lower whilst the euro has picked up 0.5 percent worth of gains. 

 

Japanese Yen

FXStreet: Currently, USD/JPY is trading at 112.47, up 0.00% on the day, having posted a daily high at 112.57 and low at 112.40. USD/JPY  has been the hardest hit on the back of the market's reaction to the FOMC announcement on Wednesday and dovish BoJ outcome.


USD/JPY was clearing through the barrier option 112 level like a knife through butter yesterday and moved up to test the bear's commitments at the key 112.80 level, being the 76.4% retracement of the 114.49-107.32 fall. There was a slide back to 112.14 early doors in the NY session on profit taking and possibly due to fresh N.Korean concerns. 


However, the BoJ is a weight on the yen, having left policy as is with the 10-yr JGB target at zero with a short-term rate target at -0.1% with one dissenter, Kataoka who actually felt more was needed also a big weight on the yen. The asset buy programmes are to remain as is as well and voted for unanimously at Yen-80T at a yearly pace. 

 

Global Markets

Reuters: Asian stocks slipped on Friday but showed signs of steadying as the dust began to settle after the Federal Reserve’s hawkish policy statement, while investors looked to see how Chinese financial markets would react to a downgrade on the nation’s credit rating. 


MSCI’s broadest index of Asia-Pacific shares outside Japan handed back earlier gains and was down 0.1 percent after falling 0.7 percent the previous day. Japan's Nikkei slipped 0.15 percent, Australian stocks advanced 0.1 percent and South Korea's KOSPI fell 0.7 percent. S&P Global Ratings downgraded China’s long-term sovereign credit rating on Thursday, less than a month ahead of one of the country’s most sensitive political gatherings, citing increasing risks from its rapid build-up of debt.


Crude oil prices were little changed amid a wait-and-see mood as ministers from the Organization of the Petroleum Exporting Countries, Russia and other producers meet later on Friday to discuss a possible extension of the 1.8 million barrels per day (bpd) of supply cuts to support prices. Brent crude was up 0.1 percent at $56.50 a barrel after reaching a five-month high of $56.53 overnight.  stood at $56.16.