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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.

 

03 / 04 / 20

 

LONDON OFFICE

 

British Pound

 

Reuters: Britain’s pound will have regained some of its lost ground against the dollar in a year but forecasts in a Reuters poll were slashed from a month ago as the coronavirus pandemic continues to wreak havoc globally. Sterling has been hammered in recent weeks as fears about the economic impact of the pandemic sent investors scrambling for dollars - the world's most liquid currency and one seen as a safe haven in times of crisis. On March 20 the pound sank to its lowest level in 35 years. “Over the last four to six weeks we have seen an indiscriminate sell-off of currencies - a bit like the baby being thrown out with the bathwater,” said Chris Turner at ING. “As things return to normal, the dollar should return some of its recent gains.” Trading around $1.24 on Thursday, cable will be at $1.22 in a month, but then strengthen to $1.25 in six months and by 4% to about $1.29 in a year, according to the median estimate of over 50 foreign exchange specialists polled March 27-April 2.


“Assuming the virus is contained and lockdowns begin to ease in the second half of Q2, we see scope for GBP gains versus the dollar,” MUFG told clients. However, as sterling has plummeted those forecasts were a sharp climbdown from the respective $1.29, $1.32 and $1.35 predictions made only a month ago. That was the biggest monthly drop in the 12-month outlook since Britons voted to leave the European Union in June 2016. The 12-month forecast range was wide - highlighting the uncertainty - from as low as $1.13 to a high of $1.41. Adding to the currency’s woes, the Bank of England, like dozens of other central banks, has loosened monetary policy. It made two emergency cuts to its Bank Rate, taking it to 0.10%, ramping up its bond-buying programme and promising more asset purchases if needed to stop a coronavirus-related shutdown from plunging Britain into a long recession. Finance Minister Rishi Sunak, for his part, has announced an unprecedented fiscal stimulus plan to try and keep the economy afloat. “The performance in FX markets over the coming months will likely also be driven more by evidence of how policy measures are playing a role in economic recovery. We see the steps taken by the UK government as positive,” MUFG noted. As the virus sweeps across Europe, governments in the euro zone have also unveiled huge stimulus measures and the European Central Bank has increased its asset purchase target for this year to around 1.1 trillion euros. Against the euro sterling will fare worse than was expected last month. On Thursday one euro would get you about 88 pence and the poll suggested it would be worth 90p in one and six months, and then 88p again in a year. In the March poll the respective forecasts were all 85p.
 

US Dollar

Reuters: The dollar edged toward a 2% weekly rise on Friday, boosted by a surge in the oil price and as investors sought safety amid the worsening economic fallout from the coronavirus pandemic. The gains consolidate the dollar’s strength after a rollercoaster end to last month, when it soared in a scramble for cash, then slumped as the U.S. Federal Reserve flooded the market with liquidity. The largest ever daily rise in crude oil prices helped the greenback to its best day in two weeks against the euro on Thursday, since the United States is the world’s top producer. It held that ground to stand at $1.0836 per euro on Friday - ahead 2.7% for the week. Against a basket of currencies the dollar is up 2% for the week so far at 100.270, its best performance since mid-March. Moves in Asian trade were slight since traders are bracing for bad news when monthly U.S. payrolls data is published at 1230 GMT.


The coronavirus pandemic is worsening in the United States. As lockdowns extend, weekly jobless claims doubled to a massive 6.6 million last week. “Rising jobless numbers suggest that productive capacity is being eroded, said Seema Shah, chief strategist at Principal Global Investors in London. “So when self-isolation measures are eventually lifted, economic activity will take that much longer to get back on its feet. The chances of a V-shape economic recovery are fading.” Pessimism kept the dollar firmer against most other major currencies apart from the Australian dollar which was marginally stronger at $0.6065. The New Zealand dollar eased 0.2% to $0.5909 and the pound was slightly softer at $1.2369. The dollar was steady at 108.00 Japanese yen. Brief gains in oil-exposed currencies such as the Norwegian krone and Canadian dollar mostly evaporated with some retracement of oil's gains amid doubts around supply cuts. Global coronavirus cases surpassed 1 million on Thursday, with more than 53,000 deaths, according to a Reuters tally of official data. As lockdowns extend, the economic pain is also growing and purchasing managers’ index surveys due across Europe later on Friday are likely to be dire. The median expectation for March U.S. payrolls is a 100,000 drop in employment, according to a Reuters’ survey of economists, though many reckon there will be far uglier numbers to come as the data catches up to the damage in the real economy. “The U.S. labour market has more or less collapsed,” said Joe Capurso, currency analyst at Commonwealth Bank of Australia which is forecasting a 200,000 drop. “Very large falls are coming in the following months, even if tonight’s report is stronger than expectations.” That has relatively few betting against the dollar. A Reuters poll found a third of 63 analysts reckon on a fall from here, with the rest forecasting gains or consolidation. Emerging market currencies were mostly steady. “There may be a sense of stabilization, but the market and macro backdrop has not become constructive for emerging markets yet, with still tight, albeit having eased somewhat, dollar liquidity, and a grim growth outlook,” said Frances Cheung, Westpac’s head of macro strategy in Asia.
 

South African Rand

Reuters: South Africa’s rand fell to a new all-time low against the dollar on Thursday, as analysts predicted a steep economic contraction and large budget deficit because of the global coronavirus pandemic. At 1545 GMT, the rand was around around 2% weaker at 18.6000 per dollar, after earlier touching a new low of 18.6500. South Africa has the most confirmed coronavirus cases in sub-Saharan Africa, at 1,380. It is heavily exposed to the disruption caused by the virus as a major exporter of commodities and has imposed some of the toughest restrictions on the continent, including a 21-day lockdown that began on Friday. The toll on the economy, which fell into recession late last year, has already shown up in preliminary tax numbers. BNP Paribas economist Jeffrey Schultz said in a research note that he had revised down his gross domestic product (GDP) forecast to a contraction of 4.0% this year.


He now expects a 9.1% of GDP budget deficit in the 2020/21 fiscal year that will compound worries over the country’s public finances, which have been stretched by repeated bailouts to ailing state firms including power utility Eskom and South African Airways. The yield on the government bond due in 2030 rose 3 basis points to 11.190%. On the Johannesburg Stock Exchange, strong gains for gold shares helped lift the main indices by more than 3%. Gold Fields was up 10.76% and AngloGold Ashanti 11.02% higher, supported by a higher spot gold price. Shares in telecom firm MTN Group rose 12.59%, helped by signs Saudi Arabia and Russia may be ready to cooperate to stabilise the oil market after a slump in prices. MTN operates in a number of oil-producing countries such as Nigeria and Iran.

 

Global Markets

Reuters: Oil prices retreated on Friday after massive gains, while stocks in Asia edged down, as doubts grew over an oil price deal between Saudi Arabia and Russia that U.S. President Donald Trump said he had brokered. With the coronavirus pandemic raising the risk of a prolonged global downturn, investors continued to seek the safety of the U.S. dollar and government bonds, pushing U.S. Treasuries yield near their lowest in three weeks. U.S. West Texas Intermediate (WTI) crude lost $1.14, or 4.5% to $24.18 a barrel in early Asian trade after having surged a record 24.7% on Thursday. Brent futures dropped $0.70, or 2.67% to $29.24. Trump said on Thursday he had spoken to Saudi Crown Prince Mohammed bin Salman, and expects Saudi Arabia and Russia to cut oil output by as much as 10 million to 15 million barrels, as the two countries signalled willingness to make a deal. Saudi Arabia said it would call an emergency meeting of the Organization of the Petroleum Exporting Countries, Saudi state media reported.


The amount Trump talked about would represent an unprecedented cut amounting to 10% to 15% of global supply, if he meant output per day - a common unit of measurement. But Trump did not specify and some analysts say the omission may be intentional. “He is a business man and smart enough to know these things. A cut of 10-15 million barrel per day (bpd) would be simply impossible,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “How could Riyadh and Moscow agree on such a big cut, just about a month after they had fought over a cut of 1.5 million.” In early March, talks over production cuts between the two countries collapsed, leading them to start a price war that pushed oil prices to the lowest levels in nearly two decades. Nor did Trump make any offer to reduce U.S. production, now the world’s largest. “Both Riyadh and Moscow will also be looking for participation from U.S. producers, and this may prove now to be the biggest obstacle to an agreement,” Royal Bank of Canada analysts said in a note. As oil prices retreated, E-Mini futures for the S&P 500 also fell 0.78% in Asia. MSCI’s Asia-Pacific index outside Japan dipped 0.15% while Japan’s Nikkei rose 0.3%, helped by overnight gains in Wall Street shares. On Thursday, the S&P 500 gained 2.3%. Investors sought the perceived safety of government bonds. Benchmark U.S. 10-year notes fell in price to last yield 0.593%, near a three-week low of 0.563% touched on Thursday. More evidence of the damage from widespread stay-at-home orders to contain the spread of coronavirus emerged in the United States, with an unprecedented number of workers - 6.6 million - filing jobless claims. Projections released by the U.S. Congressional Budget Office showed U.S. gross domestic product will decline by more than 7% in the second quarter as the health crisis takes hold. Global coronavirus cases surpassed 1 million with more than 52,000 deaths as the pandemic further exploded in the United States and the death toll climbed in Spain and Italy, according to a Reuters tally. Highly rated U.S. corporate bond issuers raised a record $110.502 billion this week, according to Refinitiv IFR data, as firms borrowed cash in fear the coronavirus crisis may soon limit their access to capital markets. In the currency market, the dollar maintained its firmness against a basket of currencies as investors and companies continued to hoard the world’s most liquid currency. The dollar index has risen 1.88% so far this week, even as extreme tightness for dollars in some markets since last month has eased. The euro steadied at $1.0853 after four straight days of losses. The yen also stepped back to 107.95 per dollar from Wednesday’s two-week high of 106.925. Gold prices rose ovenright as U.S. jobless claims hit a new peak, intensifying fears of the coming economic slowdown and drove investors toward the safe-haven metal. Spot gold traded at $1,613.5 per ounce after a 1.28% rise on Thursday.

HONG KONG OFFICE

 

British Pound

FXStreet: GBP/USD remains capped between 21-day SMA and 1.2485/95 region. 61.8% Fibonacci retracement adds to the resistance. Sellers look for entry below 21-day SMA. GBP/USD remains modestly changed while taking rounds to 1.2395 amid the Asian session on Friday. In doing so, the pair continues to stay below a short-term horizontal resistance and 21-day SMA support. With RSI conditions also portraying the range-bound momentum, traders are less likely to be interested in the pair unless breaking 1.2495-1.2265 range. It should also be noted that 1.2500 round-figure and 61.8% Fibonacci retracement of March month declines, at 1.2515, add to the upside barriers. On the contrary, pair’s declines below 21-day SMA level of 1.2265 could take rest around 1.2135/30 ahead of testing 38.2% Fibonacci retracement level of 1.2090.

 

US Dollar

Reuters: The dollar edged toward an almost 2% weekly rise on Friday, boosted by a surge in the oil price and as investors sought safety amid the worsening economic fallout from the coronavirus pandemic. The gains consolidate the dollar’s strength after a topsy-turvy end to last month, which had the dollar soaring in a scramble for cash, then slumping as the U.S. Federal Reserve flooded the market with liquidity. It held that ground to stand at $1.0838 per euroon Friday - ahead 2.7% for the week. Against a basket of currencies the dollar is up 1.8% for the week so far at 100.210, its best performance since mid-March. Moves in Asian trade were slight since traders are bracing for bad news when monthly U.S. payrolls data is published at 1230 GMT.

 

The dollar was firmer against most other major currencies, last trading at $0.6054 per Australian dollar, $0.5903 per New Zealand dollar and $1.2376 per pound. It bought 108.00 Japanese yen. “The increase in the dollar because of the poor U.S. economic data reflects the dollar’s status as a counter‑cyclical currency.  It lifts when the global economy deteriorates, even if the deterioration in the global economy is the U.S.”

 

Japanese Yen

FXStreet: USD/JPY fails to hold onto the recent recovery gains, capped in a range. The broad US dollar strength ignored worrisome Jobless Claims, virus data. US President Trump’s tweets, concerning likely Saudi-Russia pact, triggered fresh risk-on. Japan’s Jibun Bank Services PMI will be the immediate catalyst, US data, COVID-19 will be important. USD/JPY maintains the 107.80 to 108.10 range, established since the late-US session, while taking rounds to 107.85 amid the early Asian session on Friday. The yen pair seems to await fresh clues to extend the previous risk-off amid the broad US dollar strength. Not only a 200-day SMA level of 108.35 but a confluence of 50-day and 100-day SMAs between 108.80 and 109.00 could also question the pair’s pullback.

 

Global Markets

Reuters: Asian markets on Friday looked to latch onto Wall Street’s overnight gains after crude prices notched their biggest one-day surge on record, helping offset concerns about the depth of a global recession. Despite the rally in stocks, investors still sought the safety of the U.S. dollar and government bonds as an unprecedented number of Americans - 6.6 million - filed jobless claims due to coronavirus-induced lockdowns, as economic concerns stayed front and center. U.S. stocks rallied after U.S. President Donald Trump said he expects Russia and Saudi Arabia to announce an oil production cut of up to 10 million to 15 million barrels as the two countries signaled willingness to make a deal. 

 

Nikkei futures edged slightly higher, above the index’s cash close on Thursday, and Australia’s benchmark was up 1.5% in early trade. Hong Kong futures were negative. E-Mini futures for the S&P 500 fell 0.04%. A gauge of stocks across the globe advanced 1.24% overnight, adding to modest gains earlier in Europe. On Wall Street, the Dow Jones Industrial Average rose 2.2%, the S&P 500 gained 2.3% and the Nasdaq Composite added 1.7%.

 

Gold prices jumped as record high U.S. jobless claims intensified fears of the coming economic slowdown and drove investors toward the safe-haven metal. U.S. gold futures settled 2.9% higher at $1,637.70 an ounce. Brent futures rose $5.20, or 21.0%, to settle at $29.94 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $5.01, or 24.7%, to settle at $25.32. Despite the record surge on Thursday, oil prices have still lost more than half their value this year.

 

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