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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.

 

24 / 02 / 21

 

British Pound

FXStreet: GBP/USD wavers around the mid-1.4100s, up 0.35% intraday, after stepping back from a brief rally to 1.4243 while heading into the London open on Wednesday. Cable seems to benefit from the greenback weakness amid optimism at home. Also favoring the sterling bulls could be options that triggered a spike on the EUR/GBP. Though, Brexit chatters and cautious sentiment ahead of Powell’s second testimony session test the rally. Although broad US dollar weakness and the UK’s unlock announcements are favorable to the cable bulls, not to forget upbeat jobs report, chatters that Britain can regain traction on faster vaccination drive, shared via Telegraph, propelled the run-up to 34-month top. 


Also on the positive side could be the British readiness to offer the European Union (EU) time till April to ratify the Brexit deal. Furthermore, the UK’s jab count of 18 million and readiness to weigh vaccine passports, to not disappoint the travelers during festivals, offered extra strength to the GBP/USD prices. Meanwhile, AstraZeneca’s fear of not being able to perform on the EU’s contracted vaccine delivery join British scientists warning over UK PM Boris Johnson’s June deadline for total unlock to challenge the run-up. US central banker Powell’s readiness to tame the yields with prolonged easy money also tried to disappoint bulls, but couldn’t as the British jobs report painted a rosy picture.


Against this backdrop, S&P 500 Futures remain mildly bid whereas global yields pause the latest rally. GBP/USD traders should keep their eyes on any major announcement to tame the bond coupons, less likely though, during Powell’s testimony 2.0. Also important will be how the bloc responds to AstraZeneca's note and UK’s help on Brexit as well as further unlock hints from the Tory government. Considering the recently improving fundamentals, Britain is up for recovery but not as fast as GBP/USD runs to the north.

 

US Dollar

Reuters: The U.S. dollar slipped to three-year lows against the British pound and antipodean currencies on Wednesday as the promise of extended easy monetary conditions globally boosted investor appetite for riskier assets. The New Zealand dollar dipped briefly before rallying to the highest since April 2018 after the country’s central bank emphasised patience over the timing of exiting ultra-easy policy settings. U.S. Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy, which many analysts and investors view as a long-term negative factor for the greenback.


Money flowed from safe havens like the dollar toward currencies that are expected to benefit from a pick-up in global trade, and to countries like Britain that are bouncing back quickly from the coronavirus pandemic. “Signs of economic recovery are lifting commodities prices, which in turn supports currencies of commodities exporters,” such as the Australian dollar, said Junichi Ishikawa, foreign exchange strategist at IG Securities. “Risk appetite has improved a lot, and this leaves the dollar at a big disadvantage.” The dollar index against a basket of six major currencies was at 90.111, hovering near the six-week low of 89.941 it reached overnight.


The Australian dollar, which tends to benefits from rising metal and energy prices, jumped to a three-year high of $0.7945 before paring gains to trade 0.1% stronger at $0.7914. The New Zealand dollar rose as high as $0.7384, following an knee-jerk dip, after the Reserve Bank of New Zealand (RBNZ) expressed some caution about the outlook, potentially disappointing traders who expected the monetary authority to acknowledge a recent improvement in economic data. “Financial markets have been flirting with the idea that the RBNZ could tighten monetary policy next year, and today’s statement will have discouraged those holding that view,” Westpac analyst Dominick Stephens wrote in a client note. “The RBNZ wants to see the whites of the eyes of inflation and employment before it shifts monetary policy.”


The British pound rose 0.3% to $1.4158 after earlier touching $1.4295 for the first time since April 2018. The outlook for sterling has brightened as investors cheer Britain’s rapid coronavirus vaccination programme and its plans to ease lockdown restrictions on economic activity. The euro bought $1.21495, close to the one-month high of $1.2180 set overnight. The dollar managed to rise against other traditional haven currencies, adding 0.2% to 105.485 Japanese yen and hitting an almost three-month high against the Swiss franc. The Fed’s Powell pushed back against suggestions that loose monetary policy will lead to runaway inflation and financial bubbles, which have emerged as two important worries this year, because there is growing scepticism about the rapid pace of gains in global stock markets. For economies that have limited disruptions caused by the coronavirus outbreak, their central bankers now face questions of when to start tightening policy, which makes the dollar look less attractive, some analysts say.


In the cryptocurrency market, bitcoin recovered to trade above $50,000 following a sharp plunge this week from its record high of $58,354.14 reached Sunday. Square Inc said on Wednesday it had invested $170 million in the digital asset in the fourth quarter, but some analysts still argue that bitcoin’s recent surge was excessive. Rival digital currency ether rebounded from its own steep sell-off to trade up slightly at $1,618.

 

South African Rand

Reuters: The South African rand gained sharply on Tuesday afternoon after Federal Reserve Chair Jerome Powell said the U.S. economy needed support for "some time," comments that hurt the dollar. The prospect of ongoing support by the central bank of the world's largest economy is positive for emerging markets like South Africa. The rand reacted little to data from Statistics South Africa showing the official unemployment rate rose to 32.5% in the fourth quarter of last year, up from 30.8% in the previous three months.


At 1540 GMT, the rand traded at 14.5750 against the dollar, almost 0.8% firmer than its previous close. Later today, market attention will turn to the state of South Africa's public finances when Finance Minister Tito Mboweni delivers his budget speech in parliament. A Reuters poll published last week showed South Africa's fiscal deficit is expected to narrow this year because of an economic rebound, but the long-term trend of higher debt remains unchanged due to the COVID-19 pandemic and pressures like loss-making state-owned enterprises.


Stocks fell on the Johannesburg bourse on Tuesday, mirroring falls elsewhere in global equities before Powell spoke. The Top-40 index ended down 2.3% at 60,494 points, while the All-share index fell 2.1% to 65,922 points.

 

Global Markets

Reuters: Bond markets steadied, the U.S. dollar fell and stocks edged ahead on Wednesday after central banks from Washington to Wellington vowed to keep monetary policy loose for a long time, giving investors enough confidence to seek out riskier assets. U.S. Federal Reserve Chair Jerome Powell told Congress on Tuesday the economy remained “a long way” from employment and inflation goals and that rates would stay low and bond buying proceed apace until there was “substantial further progress”. 


The Reserve Bank of New Zealand on Wednesday made no changes to its rates or bond purchase programme either and said policy will need to remain stimulatory until inflation is sustained at 2% and employment hits maximum levels. Taken together, it was enough to reassure investors that authorities won’t rush to raise rates even if inflation accelerates. Risk-sensitive currencies rose, pushing the kiwi, Aussie and sterling to their highest levels since early 2018, while the safe-haven Japanese yen slipped.  MSCI’s broadest index of Asia-Pacific shares outside Japan, which has drifted 1.2% lower over the week as rising yields pressured valuations, rose 0.3% and S&P 500 futures rose 0.1%. Tech stock selling pushed Japan’s Nikkei 0.4% lower.


Benchmark 10-year U.S. Treasury yields, which fall when prices rise, were steady at 1.3480% after closing 2.4 basis points lower following Powell’s testimony to Congress. Powell did not seem too fussed about the selloff that has driven the 10-year yield up by 40 basis points this year, telling lawmakers it was a statement on the market’s confidence in the pandemic recovery. But he cautioned that was a ways off and said markets would get plenty of warning about any future policy adjustments. His comments reversed a morning sell off on Wall Street, and the S&P 500 closed 0.1% higher, although the Nasdaq, which is full of growth stocks more sensitive to higher yields, finished Tuesday down 0.5%.


“The overall takeaway from Powell is that over the next couple of months he will just keep singing the same dovish commitment song,” said Edward Moya, senior market analyst at OANDA in New York. “Until we see more than half of the 10 million jobs come back, Powell won’t change his tune.” Elsewhere commodity prices eased a little after hefty gains in recent days and benchmark Brent crude oil futures fell 0.5% to $65.01 a barrel. U.S. crude futures traded 0.8% lower at $61.19 a barrel. In currency markets, the Australian dollar hit a three-year high of $0.7945 and the New Zealand dollar made the same milestone, reaching $0.7378. Sterling, which has been boosted by Britain’s vaccine rollout, briefly leapt as high as $1.4295, its best since April 2018. Cryptocurrency bitcoin nursed losses at $49,700 after a two-day selloff.

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