Image

 

 

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.

 

18 / 10 / 18

LONDON OFFICE

 

British Pound

Reuters: Sterling weakened on Wednesday after data showed inflation fell more than expected in September and before a European Union summit at which Britain will try to unblock stalled negotiations for a Brexit deal. Economic data had briefly redirected traders’ attention towards the British economy and away from Brexit this week after figures on Tuesday showed the strongest wage growth for workers in a decade. But weaker-than-expected consumer price inflation, which came in at an annual rate of 2.4 percent in September versus forecasts of 2.6 percent, pushed down a pound already weakened by a BBC report that Britain would not seek to extend the Brexit transition period. The pound has largely shrugged off a deterioration in the Brexit talks in recent days and remained calm, but traders say it remains at the mercy of the negotiations. “As important as the data is, the market is still focused on Brexit,” said Neil Mellor, a strategist at BNY Mellon. 


The pound, trading down 0.3 percent at close to $1.3150 before the data was released, fell further and hit a day’s low of $1.31, down more than half a percent on the day. Against the euro, sterling dropped to 88.06 pence, down 0.3 percent on the day before recovering as a broad dollar rally hit demand for euros. The Bank of England has said tighter monetary policy depends on Britain agreeing a trade deal with the EU. But it also wants to see signs of more wage growth, which could feed into inflation. BoE Deputy Governor Jon Cunliffe said on Wednesday this week’s data does not yet show that wages are growing as strongly as the bank had predicted they would earlier this year. Nomura economist George Buckley said sustained faster wage growth should eventually lead to a faster pricing of interest rate increases. “With Brexit uncertainty high, the market won’t price that immediately, but if wages maintain this momentum, a sharp upward shift in rates pricing will follow in due course, we think,” he wrote in a note to clients.

 

US Dollar

Reuters: The dollar traded stronger versus its major peers on Thursday after minutes from the U.S. Federal Reserve’s September meeting affirmed expectations that the central bank is likely to continue raising interest rates this year. Every Fed policymaker backed raising interest rates last month and also generally agreed borrowing costs were set to rise further. Interest rate futures are now pricing in an 83 percent likelihood that the Fed raises rates in December, according to the CME Group’s FedWatch Tool, the fourth hike this year. Two more increases are likely next year. The dollar index, which measures its value against six major peers, traded at 95.664, up 0.1 percent on Thursday. 


“The dollar is being bid as there is follow through support post the release of the FOMC minutes,” said Ray Attrill, head of currency strategy at NAB. “Dollar bulls are playing to the view that the market is under-pricing what the U.S. Fed can do,” added Attrill. U.S. benchmark 10-year treasury yields climbed to 3.2 percent on Thursday. The last time they traded below the psychologically important 3 percent level was Sept. 18. The euro changed hands at $1.1501 on Thursday. The British pound lost 0.12 percent versus the dollar on Thursday to $1.3096, weakening after European Union’s chief Brexit negotiator Michel Barnier’s comments on Wednesday that more time was needed to secure an exit deal for Britain. 

 

South African Rand

BDLive: The rand was weaker on Wednesday afternoon as the dollar gained on the euro ahead of the release of the US Federal Reserve’s federal open market committee (FOMC) minutes later in the day. The minutes are likely to re-affirm the Fed’s hawkish stance on interest rates, despite earlier criticism from US President Donald Trump that the Fed is “crazy” to continue with its interest-rate hiking strategy. The dollar also gained on the euro as it seems increasingly likely that a Brexit deal between the EU and the UK will not be reached at the EU summit in Brussels.  A “no-deal scenario” is looking increasingly likely after EU Council president Donald Tusk said on Tuesday that he harboured “no grounds for optimism” which could roil eurozone markets and produce sharp swings in the pound, Dow Jones Newswires reported. The biggest snag in EU-UK discussions may centre on the issue of trade between Ireland and Northern Ireland, the latter being  part of the UK. 


The UK is slated to leave the EU on March 29 next year and talks are expected to be completed by mid-November. However, analysts say much of the weakness in the euro has already been priced in. If the euro doesn’t break from the present range to go higher, it would be “a worrying sign for us”, ING analysts said in a note. “We are surprised that the euro isn’t doing better, given that emerging-market currencies are showing signs of recovery and the dollar is consolidating.” Further losses in the rand were capped by better-than-expected retail sales data for August, released earlier in the day. Retail sales rose an annual 2.5%, from an upwardly revised 1.4% in July and much higher than the expected 0.3%. At 2.56pm, the rand was at R14.2388 to the dollar from R14.1646, at R16.4206 to the euro from R16.395, and at R18.6652 to the pound from R18.6754. The euro was at $1.1531 from $1.1574. Local bonds edged firmer with the yield on the R186 bid at 9.145% from 9.165%. The US 10-year treasury was last seen at 3.1507% from 3.1648%.

 

Global Markets

Reuters: The Canadian dollar changed hands at 1.3022. The dollar has gained 1.6 percent versus the loonie over the last twelve trading sessions. The Japanese yen broke a four-day winning streak versus the dollar on Wednesday, as the greenback gained 0.65 percent versus the Japanese currency. The yen changed hands at 112.65 to the dollar on Thursday. The dollar has gained 0.9 percent versus the yen since Monday, when the yen hit a one-month high of 111.61. The Australian dollar, often considered a barometer of global risk appetite, changed hands at $0.7126 on Thursday, gaining 0.24 percent versus the greenback on the back of a strong unemployment report. 


The Aussie hit a two-year low of $0.7039 on Oct. 5 and analysts still expect the currency to remain under pressure. “The combination of a strengthening U.S. dollar and commodity price pressures could bring a test of the two-year low around $0.7040 in the coming sessions,” said Sydney based Michael McCarthy, chief market strategist at CMC Markets. Elsewhere, in a document keenly awaited by markets, the U.S. Treasury Department’s semi-annual currency report, released on Wednesday, did not name China or any other trading partner as a currency manipulator. “The fact that they refrained from labelling China a currency manipulator is a positive development, especially from the point of view of emerging market currencies,” said Attrill.

HONG KONG OFFICE

 

British Pound

FXStreet: The GBP/USD pair continued to recover ground after the beginning of the US session and climbed to 1.3138. Earlier today bottomed following lower than-expected UK inflation data at 1.3098. The pair was hovering around 1.3130, down for the day but off lows. The recovery took place after the US dollar lost strength in the market. Weak housing data limited the demand for the greenback. Focus now turns to the FOMC minutes to be released at 18:00 GMT.  

 

In Europe, the EU summit with Brexit on focus will continue today and on Thursday. Many comments from UK and EU officials hit the wires today but with limited influence on markets. Volatility is expected to rise as the meeting goes on, with the pound likely to be more sensitive on Thursday than today, to rumors and comments. 

 

To the upside, resistance levels might be seen at 1.3140 (US session high), followed by 1.3170 and 1.3195 (Oct 17 high). On the flip side, support could be located at 1.3115 and then at 1.3095/1.3100 (Oct 17 low) and 1.3080. 

 

US Dollar

Reuters: The dollar traded stronger versus its major peers on Thursday after minutes from the U.S. Federal Reserve’s September meeting affirmed expectations that the central bank is likely to continue raising interest rates this year. Every Fed policymaker backed raising interest rates last month and also generally agreed borrowing costs were set to rise further. Interest rate futures are now pricing in an 83 percent likelihood that the Fed raises rates in December, according to the CME Group’s FedWatch Tool, the fourth hike this year. Two more increases are likely next year.

 

“The dollar is being bid as there is follow through support post the release of the FOMC minutes,” said Ray Attrill, head of currency strategy at NAB. “Dollar bulls are playing to the view that the market is under-pricing what the U.S. Fed can do,” added Attrill.

 

The euro changed hands at $1.1501 on Thursday. The British pound lost 0.12 percent versus the dollar on Thursday to $1.3096, weakening after European Union’s chief Brexit negotiator Michel Barnier’s comments on Wednesday that more time was needed to secure an exit deal for Britain. The Canadian dollar changed hands at 1.3022. The dollar has gained 1.6 percent versus the loonie over the last twelve trading sessions. The Japanese yen broke a four-day winning streak versus the dollar on Wednesday, as the greenback gained 0.65 percent versus the Japanese currency. The yen changed hands at 112.65 to the dollar on Thursday. The dollar has gained 0.9 percent versus the yen since Monday, when the yen hit a one-month high of 111.61. The Australian dollar, often considered a barometer of global risk appetite, changed hands at $0.7126 on Thursday, gaining 0.24 percent versus the greenback on the back of a strong unemployment report. The Aussie hit a two-year low of $0.7039 on Oct. 5 and analysts still expect the currency to remain under pressure.

 

Japanese Yen

FXStreet: USD/JPY rallied on a mix of better performing EM-FX, US stocks, Diminishing market expectations for BOJ normalization and 10-year yields getting up into the 3.20's%. The pair traded to 112.38 before the FOMC minutes and then into the 112.60's for a 112.69 NY session closing high.  The FOMC minutes was originally digested as not containing anything particularly new, although at a second glance and further scrutiny, the markets picked up on the hawkishness in the  par that read, " A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level.”

 

Valeria Bednarik, chief analyst at FXStreet argued that, technically, the pair seems poised to extend its advance: "... now challenging the 200 SMA in the 4 hours chart after being unable to surpass it ever since the week started, and technical indicators in the mentioned chart heading sharply higher, both in positive ground. The pair would need to surpass now the 112.60 static resistance level to be able to extend its advance during the upcoming sessions."

 

Global Markets

Reuters: Asian stocks were capped and the dollar rose to a one week-high in early Thursday trade after the minutes of the Federal Reserve’s latest meeting showed broad agreement among board members on the need to raise borrowing costs further. The specter of rising U.S. dollar yields, which along with global trade tensions were at the center of last week’s global equities rout, kept riskier appetite in check in Asia. MSCI broadest index of Asia-Pacific shares outside Japan fell 0.2 percent, while the Australian benchmark also dropped 0.2 percent. Japan’s Nikkei average was flat, and appeared to struggle for headway. Data out earlier in the day showed exports from the world’s third-biggest economy dropped for the first time since late 2016, hit by declines in shipments to the United States and China.

 

Oil prices fell on Wednesday, with U.S. futures settling below $70 a barrel for the first time in a month, after U.S. crude stockpiles rose 6.5 million barrels, almost triple what analysts had forecast, while exports dropped. The West Texas Intermediate crude futures and Brent crude futures last traded at $69.79 and $80.08 a barrel, respectively.

 

ImageImageImage

 

Issued by Mercury Foreign Exchange Limited

 

Registered in England and Wales 06445887. Registered office: Becket House, 36 Old Jewry, London EC2R 8DD

Authorised and regulated by the Financial Conduct Authority: 531127 

© Copyright 2015 Mercury Foreign Exchange Limited

 

Disclaimer - Terms & Conditions - Security - COI - Privacy Policy       Website Designed by Studio91 

 

 

Trustpilot