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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.

 

30 / 09 / 20

 

LONDON OFFICE

 

British Pound

Reuters: Sterling erased earlier gains against the dollar on Tuesday after Bank of England Governor Andrew Bailey warned the economic recovery may not be as strong going forward and did not entirely rule out using sub-zero interest rates if needed. Britain’s economic activity was probably about 7-10% weaker than before the coronavirus pandemic in the July-September period, Bailey said in an online speech to Queen’s University Belfast. While he did not rule out using negative interest rates, he said the central bank was realistic about the potential challenges to the banking system. Sterling was just 0.1% higher at $1.2844 by 1500 GMT after hitting $1.2902 earlier. It slipped 0.6% versus the euro to 91.4 pence as the single currency strengthened against the dollar. Trade had earlier opened on a more positive note as Britain kicked off three days of negotiations on its trade agreement with the European Union, with some analysts growing hopeful of a deal.


Talks on a joint legal text of trade agreement, which will also cover energy links and transport, will last until Friday morning. EU negotiators have signalled that they are willing to begin work on a joint legal text of trade agreement before talks resume, the Times reported on Tuesday. “This week is a very, very important week for the pound as we slowly grind toward the day of true Brexit,” MUFG analysts said. “In negotiations and given the political capital that (Prime Minister Boris) Johnson is losing in the fight against COVID we see the balance as having shifted more in favour of a deal.” Some analysts noted, however, that Britain still faced a few sticking points on negotiations. “There is cautious optimism but is there going to be significant progress made by Friday, that is the real question,” said Kenneth Broux, a strategist at Societe Generale. “Clearly if there is enough progress by Friday, that will be bullish for the pound.”

 

US Dollar

Reuters: The dollar was little changed in Asian trade on Wednesday, as traders assessed a fierce first debate between Republican President Donald Trump and Democratic rival Joe Biden ahead of the Nov. 3 U.S. presidential election. In the pivotal debate, marked by Trump’s repeated interruptions in a chaotic encounter, the candidates battled over the president’s leadership on the coronavirus pandemic, the economy and taxes. The dollar index against a basket of currencies hardly budged at 93.821, after hitting a two-month high last week. Analysts said neither candidate emerged from the debate with a decisive advantage. “It’s like as if they are both just insulting each other. There is not much impact on the markets,” Tohru Sasaki, head of Japan market research at J.P.Morgan. Month- and quarter-end currency flows appeared to hamper the greenback, while better-than-expected U.S. economic data also dented its perceived safe-haven bid. U.S. consumer confidence rebounded more than expected in September as households’ views of the labour market improved. China’s yuan held steady even after twin surveys showed strong factory activity growth, which backed recent signs of a rebound in broad sectors of the world’s second-biggest economy.


In the onshore market, the yuan was little changed at 6.8130 against the dollar, while the offshore yuan also steadied at 6.8137 per dollar. The euro was firm around a one-week high of $1.1746 hit overnight. Against the yen, the single currency changed hands at 124.01 yen, hovering near a two-week high of 124.11 yen. The dollar advanced a fraction against the Swiss franc at 0.9202 franc, after falling as low as 0.9191 franc overnight. Against the yen, the greenback was steady at 105.64 yen, a fraction below a two-week high of 105.74 it marked overnight. Traders also remain focussed on progress made around a U.S. fiscal stimulus packaged to cushion the coronavirus blow. U.S. House Speaker Nancy Pelosi said on Tuesday she hoped to have a coronavirus aid deal with the White House this week, after speaking with Treasury Secretary Steve Mnuchin and making plans for further talks on Wednesday. Pelosi said on Monday Democratic lawmakers unveiled a new $2.2 trillion fiscal stimulus bill, but in an interview with CNBC, White House economic adviser Larry Kudlow made clear that the White House still views the updated figure as too high. “We believe it is unlikely the stimulus bill progress in its current form. The House Democrats stimulus bill is more than $1 trillion above what key Republican policymakers are willing to consider,” said Commonwealth Bank of Australia currency analyst Kim Mundy in a note. “The U.S. economic recovery is at risk without more fiscal stimulus and as a result, USD is vulnerable to additional upside in the short term.” The dollar stepped back against its New Zealand counterpart, but advanced on the Australian peer. The Aussie edged 0.24% lower at $0.7116, apparently taking its lead from falling stocks. The kiwi rose modestly, last fetching $0.6593 after an ANZ Bank survey showed New Zealand business sentiment improved in September amid growing confidence that the country's coronavirus outbreak is under control.

 

South African Rand

InvestingCube: The USDZAR pair was little changed yesterday as traders reacted to the relatively strong unemployment data from South Africa. The pair was trading at 17.08, which is in the same range it was in the previous day. The South African rand is reacting to the relatively better-than-expected jobs numbers from South Africa. According to the Bureau of Statistics (BoS), the unemployment rate fell to 23.30% in the second quarter. That was better than the previous 30.10% and the 29.70% that analysts polled by Reuters were expecting. It is also the lowest rate in decades. In total, the country reported more than 4.3 million people of working age unemployed vs the previous 7.1 million.


The strong jobless numbers come at a time when South Africa has managed to reduce the number of coronavirus infections. According to the Ministry of Health, the country recorded just 903 new cases yesterday. While this number is still high, it is the lowest it has been since May. It is also significantly lower than the peak of more than 9,000 in July. Still, the South African economy is not out of the woods yet. Public debt has continued to rise and most companies in the country are reporting significant challenges. Also, there are doubts about whether the current job additions are sustainable. As of this morning the rand is trading at R16.97 to the dollar, R21.79 to the pound and R19.91 to the euro.

 

Global Markets

Reuters: Asian shares crept higher on Wednesday after data showed China’s economic recovery gathering steam, but a chaotic first U.S. presidential debate between President Donald Trump and Democrat Joe Biden weighed on the mood. U.S. equity futures slipped and the dollar, regarded as a safe-haven currency, drew support in the wake of the debate as it offered few insights into the outcome of the U.S. election. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3% led by a 1.2% gain in Hong Kong. S&P 500 futures were volatile, and gave up gains as large as 0.7% to trade 0.5% lower for the day after President Donald Trump again cast doubt on whether he would accept the election's outcome. That also lifted the dollar a touch from overnight lows. The first face-off between Trump and Biden was seen by some political analysts as Trump’s best chance to upend a race where he has lagged in the polls. In a confrontational debate marked by constant interruptions from both candidates, Biden pressed Trump over his handling of the coronavirus and Trump responded with aggressive personal attacks. “Right now, it looks like an even split between Trump and Biden, so it is difficult for the markets to move,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.


“What people are most concerned about is the fairness of the election and how it will be carried out...under normal circumstances, the positive economic data from China we’ve seen would support risk-off trades, but this time is different.” China’s factory activity expanded at a faster pace in September, helped by a return to exports growth after several months of shrinking sales, bolstering a steady recovery for the economy as it rebounds from the coronavirus shock. The official manufacturing Purchasing Manager’s Index (PMI) rose to 51.5 in September from 51.0 in August. Analysts had expected it to pick up slightly to 51.2. A separate private survey, also released on Wednesday, painted a similar picture of the manufacturing sector gaining momentum with new export orders posting their biggest rise in three years. Beyond Hong Kong, where gains were broad based, stocks in Shanghai rose 0.5%. Australia's ASX 200 slipped 1.6%. World stocks have lost 3.7% in September, their worst monthly performance since March. The debate did not move the needle in betting markets, which project a narrow Biden victory, and currency markets were broadly steady. But as the election draws closer, investors are expecting a bumpy final lap of the campaign and are bracing for the possibility that the result is unclear on polling day. Options trade shows that volatility is expected through October and November. The euro pulled back from week-high $1.1755 after the debate to $1.1732. The risk-sensitive Australian dollar slipped to $0.7114. During the debate Trump and Biden battled fiercely over Trump’s leadership in the coronavirus pandemic, the economy and taxes. Biden said in the closing stages of the debate that he would accept defeat if he lost at the ballot box, while Trump repeated, without evidence, his concerns that mail-in ballots could encourage fraud. “I don’t think we were expecting anything else from Trump,” said Chris Weston, head of research at Melbourne brokerage Pepperstone. Elsewhere oil prices fell back toward two-week lows touched overnight amid rising concerns about fuel demand as the coronavirus pandemic worsens. Brent crude futures were last down 1.2% at $40.56 a barrel and U.S. crude futures were down by the same margin at $38.84 a barrel. Gold slipped 0.4% to 1,890 an ounce.

HONG KONG OFFICE

 

US Dollar

Reuters: The dollar index against a basket of six major currencies slipped 0.3% to 93.261. The British pound traded at $1.3307, recovering slightly from a dip to a six-week low of $1.2839 on Wednesday. 

 

The dollar held steady against the safe-harbour Swiss franc at 0.9120 and was little changed at 106.20 yen. Traders in the dollar are closely watching global equities to see if a rebound in U.S. tech shares from a rapid sell-off will support riskier assets in other markets. 

 

Across the Tasman Sea, the New Zealand dollar was little changed at $0.6680.

 

Euro

Reuters: The euro held onto gains against the dollar on Thursday as traders braced for a European Central Bank meeting to gauge policymakers’ views on the common currency’s recent appreciation and its impact on inflation. Sterling steadied above a six-week low but could face more losses due to growing concern that Britain and the European Union will fail to agree a trade deal. 

 

While markets expect the ECB to keep policy steady, investors will closely watch President Christine Lagarde’s comments on how the euro’s rise to a two-year high this month affects the outlook for inflation and economic growth.  The euro bought $1.1807 in Asia on Thursday, holding onto a 0.3% gain from the previous session. 

 

Sentiment for cable has taken a hit after Britain unveiled draft legislation that analysts say raises the possibility of it exiting the EU single market in four months time with no trade agreement in place. The euro got a boost on Wednesday after Bloomberg News reported that ECB officials are growing more confident in the bloc’s economic outlook. However, traders may be reluctant to buy the common currency further before the ECB meeting due to earlier media reports that officials are growing uncomfortable with the euro’s almost 6% appreciation against the dollar from its June low.

 

Australian Dollar

FXStreet: AUD/USD takes offers around 0.7265, down 0.25% on a day, during the early Thursday. While weakness the latest Aussie data, as well as risk-reset, can be counted as fundamental catalysts behind the quote’s pullback, a short-term falling channel since September 04 plays its technical role. 

 

However, 100-HMA questions the pairs’ further downside around 0.7260 ahead of the 61.8% Fibonacci retracement level of August 25-30 upside, near 0.7250. Although the bears are likely to recede control around 0.7250, their further dominance will aim for the 0.7200 round-figures ahead of refreshing the monthly low while visiting the channel’s support near 0.7175.

 

Meanwhile, an upside clearance of the channel resistance of 0.7285 will have to cross the 200-HMA level of 0.7305 before allowing the bulls to retake controls. In doing so, 0.7340 and 0.7380 could gain market attention before the previous month’s top, also the multi-month peak, surrounding 0.7415.

 

Global Markets

Reuters: Asian markets are expected to swing higher on Thursday, after U.S. stocks reversed course from a three-day losing streak that led the technology-heavy Nasdaq into correction territory. The U-turn in U.S. stocks, however, was already reflected in some markets, so the impact in Asia may be muted, said Rodrigo Catril, a senior FX strategist at National Australia Bank. “We still expect markets to open with a positive turn, but we don’t expect a meaningful acceleration of it,” Catril said. “It should be a positive open but not a bombastic open.”

 

Australian S&P/ASX 200 futures rose 1.28% in early trading and Japan’s Nikkei 225 futures added 0.13%. Hong Kong’s Hang Seng index futures rose 0.85%. MSCI’s gauge of stocks across the globe gained 1.44%. Wall Street ended higher on Wednesday after investors ploughed into technology stocks, taking advantage of the recent dip. 

 

The Dow Jones Industrial Average rose 439.58 points, or 1.6%, to 27,940.47, the S&P 500 gained 67.12 points, or 2.01%, to 3,398.96 and the Nasdaq Composite added 293.87 points, or 2.71%, to 11,141.56. Oil prices recovered some of the losses they saw in the prior trading session when they hovered near three-month lows. U.S. crude rose 3.5% and Brent added 2.5%, although COVID-19 outbreaks still threaten to slow a global economic recovery. U.S. crude eased 0.5% in early Asian trade on Thursday to $37.88 a barrel.

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