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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.

 

22 / 01 / 18

LONDON OFFICE

 

British Pound

Reuters: Sterling weakened on Friday after disappointing UK retail sales data dented broadening optimism about a currency that is enjoying its best winning streak against the dollar since 2014. Before Friday’s drop, sterling had been rallying against the dollar, with traders welcoming positive noises from the European Union about negotiations for Britain’s exit and growing risk appetite encouraging sterling bulls to add to their positions against a widely weakened dollar.

 

“The retail sales data paints a picture of a UK economy that is not enjoying a recovery that is being seen elsewhere across the world and the pound is reflecting that,” said Timothy Graf, head of macro strategy for EMEA at State Street Global Markets. Figures from the Office for National Statistics showed 2017 was the weakest year for retail since 2013 and a drop in sales of 1.5 percent from November, as consumers squeezed by high inflation continued to keep a tight grip on spending.

 

Sterling was down 0.4 percent at $1.3845 at 1600 GMT on Friday, a full cent lower from its daily high as the dollar staged a broad recovery. Sterling had earlier hit $1.3945, its highest since Britain’s June 2016 vote to leave the European Union.

 

US Dollar

Reuters: The dollar regained some footing on Monday after slipping earlier on a U.S. government shutdown, supported by higher Treasury yields, while investors took a relatively calm view of the Washington wrangling. The U.S. government shutdown took effect at midnight on Friday after Democrats and Republicans, locked in a bitter dispute over immigration and border security, failed to agree on a last-minute deal to fund government operations. In order to break the impasse, Republican and Democratic leaders of the U.S. Senate held talks on Sunday. The Senate was expected to vote at 0600 GMT on whether to advance a measure to fund the government through Feb. 8.

 

“The market is accustomed with what is taking place in U.S. politics. It is not reading too far into the shutdown, which is more like a political show,” said Koji Fukaya, president of FPG Securities in Tokyo. The dollar’s index against a basket of six other major currencies initially dipped to hit 90.155 but was last up 0.07 percent at 90.634, managing to hold above the three-year trough of 90.113 set on Thursday.

 

South African Rand

BD Live: The rand lost a bit of momentum on Monday morning, but the underlying trend remained strong following significant political developments at the weekend. Earlier in the session the local currency touched fresh two-and-half-year best to the dollar, outperforming other currency pairs. The relative outperformance came after the ANC’s national executive committee (NEC) resolved that President Jacob Zuma, whose two terms in office has been mired in controversy, should be recalled — but the timeline has yet to be decided.

 

The other significant development was the sudden appointment of the new board at Eskom, widely considered a key risk to the focus. The power utility has been hobbled by allegations of corruption and mismanagement. The new Eskom board will be seen as an example of swift action by new ANC leader Cyril Ramaphosa, who has promised to stabilise struggling state-owned entities (SOEs) by rooting out corruption. But Eskom is also facing a possible liquidity crunch, which has prevented it from releasing its half-year results.

 

Japanese Yen

Reuters: The dollar was down 0.41 percent at 110.64 yen, with its rebound from Wednesday's four-month low of 110.19 yen already fading even as benchmark U.S. 10-year yield rose to the highest level since Sept. 2014. A slim reduction in the Bank of Japan’s bond purchases this month spurred speculation about a possible pullback in its policy, even though many market players think any move will be many months away.

 

“Markets are increasingly sensitive to the prospect of a less-dovish BOJ, which is putting pressure on dollar/yen,” UBS Wealth Management analysts said in a note. They added that they will be looking to the BOJ’s policy meeting next week to gain more clarity on its stance. “For now, we do not think the BOJ has any urgency to shift its yield curve control regime,” they added. Another factor behind the dollar’s weakness has been global investors, including sovereign wealth funds and central banks, favoring other currencies.

HONG KONG OFFICE

 

British Pound

FXStreet: The Pound had a very good week, even though incoming economic data was generally soft and there has been no progress at all in Brexit negotiations. It opened on Monday morning in Sydney around USD1.3730 and made a whole series of fresh 2018 highs during the week. In the immediate aftermath of the EU referendum back on June 23rd 2016, GBP had fallen from 1.48 to 1.32 so there is no obvious point of technical resistance to cap the current up-move. Chart specialists will point to the February 2016 low around 1.3850 and the low in April that year of 1.4080 as possible hurdles but investors have been piling in to a currency which looks fundamentally inexpensive and has plenty of positive momentum.


The week ahead begins very quietly in terms of market-moving economic releases though Prime Minister Theresa May will be in at the World Economic Forum in Davos, Switzerland where she is scheduled to meet with US President Donald Trump. A Downing Street spokesman said the "bilateral meeting" would take place "in the margins" of the forum.


The British Pound opens in Asia this morning at USD1.3855, AUD1.7350 and NZD1.9040.

 

US Dollar

Reuters: The dollar sagged against its peers on Monday as a U.S. government shutdown dented sentiment, although losses were limited for now as investors took a wait-and-see stance on developments in Washington. The shut down came into effect at midnight on Friday after Democrats and Republicans, locked in a bitter dispute over immigration and border security, failed to agree on a last-minute deal to fund government operations. In order to break the impasse, Republican and Democratic leaders of the U.S. Senate held talks on Sunday. The Senate was expected to vote at 0600 GMT on whether to advance a measure to fund the government through Feb. 8. 


The dollar index against a basket of six major currencies was 0.1 percent lower at 90.490 but managed to hold above a three-year trough of 90.113 set on Thursday. The euro rose 0.2 percent to $1.2252, stopping short of a three-year peak of $1.2323 scaled on Wednesday. The dollar was 0.15 percent lower at 110.685 yen, still some distance from a four-month low of 110.190 plumbed on Wednesday. The Australian dollar climbed 0.2 percent to $0.8001 and the New Zealand dollar advanced 0.15 percent to $0.7289. The pound dipped 0.1 percent to $1.3889, pulling away from a 1-1/2-year top of $1.3942 reached on Wednesday. 

 

Japanese Yen

FXStreet: In a day of no data in Asia, the market is quiet and USD/JPY is stationary in Tokyo around the closing prices for Friday. Currently, USD/JPY is trading at 110.63 with a high of 11.85 and a low of 110.51. Contained by the 10-D SMA, USD/JPY is consolidating the recent losses that occurred last week from 111.48 to aforementioned lows today despite strong US Treasury yields that climbed to their highest since September 2014. The 10-year yields finished up on Friday at 2.64% having ranged between 2.61% and 2.66%. Also, the US government shutdown was a thorn in the Bull's hooves while we await the outcome of this week's BoJ.


"The Bank of Japan also meets this week and under current term, this will be Kuroda’s last quarterly ‘outlook’ meeting. The BoJ Governor is likely to send a message that official interest rates are going nowhere just yet. With neither central bank likely to signal policy changes this week, further US$ weakness may be averted," explained analysts at Westpac.

 

Global Markets

Reuters: Financial markets in the United States and Asian stocks took a knock early on Monday after the U.S. government was forced to shut down amid a dispute between President Donald Trump and Democrats over immigration. MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.2 percent while Japan's Nikkei was down 0.1 percent. U.S. S&P500 mini futures dipped 0.15 percent in early trade while U.S. Treasuries futures price dropped 5/32 to 6 1/2-year low. 


The South African rand was the biggest mover in early Asian trade, rising almost 1 percent to 2-1/2-year highs of 12.0825 per dollar. Leaders of South Africa’s ruling African National Congress (ANC) met on Saturday to outline the party’s program for the coming year amid reports that its executive planned to force Jacob Zuma to quit as the country’s president. 


Oil prices ticked up after having snapped a four-week winning streak on profit-taking. U.S. crude futures traded at $63.49 per barrel, up 0.2 percent from late last week. The global benchmark Brent futures advanced 0.2 percent to fetch $68.77 per barrel. 

 

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