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15 / 01 / 21
Reuters: Sterling rose on Thursday as pushed-back expectations for negative interest rates from the Bank of England and hopes for a quicker economic recovery in Britain given its lead in vaccinations across Europe buoyed the currency. The pound has gained against the dollar and euro, 1% and 1.5% respectively this week after Bank of England Governor Andrew Bailey threw a dampener on market expectations for sub-zero rates in Britain. Market pricing for negative interest rates from the central bank has been pushed back by nearly a month, with negative rates now expected in June 2021, compared with May 2021 earlier.
ING said the re-pricing of Bank of England negative rates expectations has fuelled euro-sterling downside momentum and the pair may re-test the 89-pence support today. Sterling was 0.2% higher to the euro at 89.025 pence, off its highest levels against the single currency - 88.84 pence - since Dec. 24. “We think there is a good case for a stronger pound with the UK leading the European vaccination race, our forecasts that the Bank of England will not join the negative interest rate club and when the near-term adjustment problems at the borders to the new EU-UK relationship are over,” said Kristoffer Kjær Lomholt, chief analyst, FX and rates strategy at Danske Bank.
With the uncertainty around a Brexit deal now largely gone, analysts are increasingly focused on Britain’s economy and its prospects. Cases of COVID-19 disease have continued to surge in Britain, forcing renewed lockdowns. A boom in Britain’s housing market has started to fade, curtailed by the new lockdowns and the coming expiry of a temporary tax cut for buyers, a survey showed on Thursday. The Royal Institution of Chartered Surveyors’ monthly gauge of new buyer enquiries fell in December to a seven-month low of +15% from +26% in November.
Reuters: The dollar’s rebound from a near three-year low faltered on Friday after U.S. Federal Reserve Chair Jerome Powell said interest rates would not rise any time soon. The release of details of President-elect Joe Biden’s $1.9 trillion stimulus on Thursday failed to give the greenback additional support, with the main points of the plan already reported by the media. Bitcoin continued to recover after a nearly $12,000 plunge from the record $42,000 reached last week, briefly topping $40,000 overnight.
The dollar index has rallied after reaching its lowest level since March 2018 last week, as the prospect of more stimulus weighed on U.S. government bonds, sending the benchmark 10-year Treasury yield above 1% for the first time since March. Although many analysts predict the greenback will resume the decline that saw it slide almost 7% last year versus major peers as the global economy recovers from the coronavirus pandemic, there is growing concern that the rise in yields will temper that weakness. “The baseline case is still for a substantial acceleration in the global economy, which historically has proven to be positive for most currencies against the U.S. dollar,” said Westpac currency analyst Sean Callow. “But I think there is potential to at least have a debate over whether the U.S. dollar will be quite as weak as people expect.”
The dollar index was little changed at 90.319 after drifting slightly lower overnight. It rebounded to as high as 90.73 at the start of this week from as low as 89.206 on Jan. 6. Powell said in a live-streamed interview with a Princeton University professor on Thursday that the economy remains far from where the Fed wants it to be, and that he sees no reason to alter its highly accommodative stance “until the job is well and truly done.” The central bank’s asset-buying program has weighed on the dollar as it increases supply of the currency, diminishing its value. The dollar was little changed at 103.77 yen after slipping 0.1% overnight.
The euro eased 0.1% to $1.21395, on track for a three-day decline. “The implication is that monetary policy will remain loose for a long time, which will keep real yields negative and contain any further USD rallies,” Commonwealth Bank of Australia currency analyst Kim Mundy wrote in a note. The riskier Aussie dollar slid 0.3% to 77.560 U.S. cents, tempering the previous session’s 0.6% rise. The Chinese yuan inched up, underpinned by the China central bank’s decision to drain a small amount of cash from the banking system while keeping interest rates unchanged. The moved reinforced investors’ views that it is slowly shifting to a tightening bias in monetary policy as economic activity bounces back to pre-pandemic levels.
In the spot market, onshore yuan opened at 6.4673 per dollar and was changing hands at 6.4703 at midday, about 0.1% or 57 pips firmer than the previous late session close. Bitcoin slid about 1% to $38,729, after climbing as high as $40,112.78 overnight.
South African Rand
Reuters: South Africa's rand and Russia's rouble rose on Thursday as most other emerging market currencies were muted against the dollar, while stocks inched up to a record high on continued optimism over easy monetary policy and stimulus measures The MSCI's index of emerging market equities rose 0.1% to hit a record high for a second consecutive session, with most bourses in Europe, the Middle East and Africa trading higher. The South African rand rose about 0.6% to the dollar, but stayed within a trading range seen since last week as weak manufacturing data from the country pointed to more economic woes.
Most market participants expect the South African central bank to hold interest rates at a record low through 2021 in order to support a local economic recovery. Russia's rouble rose after the central bank's surprise decision on Wednesday to buy foreign exchange on the local market this month, following 10 consecutive months of sales. Most other currencies in Europe, the Middle East and Africa moved in a flat-to-slightly higher range after U.S. yields rose on reports of a larger-than-expected stimulus package. The dollar resumed its rebound from 2018 lows.
Investors have been watching for any spikes in U.S. inflation, which could lead to the Federal Reserve tapering its bond-buying program, thereby pushing up yields and making the dollar more attractive. "Rising inflation will be one of the hottest topics in 2021, but it's too early for the Fed to announce any tapering of asset purchases. Any signs of this may bring an end to the Dollar's decline as higher yields begin to attract dollar inflows," Hussein Sayed, chief market strategist at FXTM, wrote in a note.
Turkish stocks rose 0.2% on Thursday to a record high. Concerns over Turkey's foreign exchange reserves have somewhat offset optimism over a monetary tightening cycle in the country, hurting the lira recently. Turkish house sales also nearly halved in December as a year-end boom in credit faded. In Asia, Chinese shares slumped as the country reported its biggest jump in COVID-19 cases in more than 10 months. But Hong Kong-listed shares of Alibaba and Tencent surged after reports the Trump administration had scrapped plans to blacklist the Chinese tech giants.
Reuters: Asian shares edged up near record highs on Friday after U.S. President-elect Joe Biden proposed a $1.9 trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to COVID-19. In prime-time remarks, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic. Global stocks had initially firmed on Thursday on a report that the stimulus package could be as big as $2 trillion, much more than markets were expecting.
Biden’s comments came after Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University. Powell said the U.S. central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term. “It’s pretty clear that there’s going to be significant stimulus. The vaccines are being rolled out, so you’re going to significant stimulus in a kind of recovery scenario. That is very bullish for risk assets, particularly as it’s unlikely that interest rates will be rising anytime soon,” said Michael Frazis, portfolio manager at Frazis Capital Partners in Sydney.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1% around midday in Asia, just off a record high. Hong Kong’s Hang Seng added 0.32%, while Australia’s ASX 200 rose 0.17%. Japan’s Nikkei was down 0.21% after touching three-decade highs in the previous session, Chinese blue-chips lost nearly 1% amid worries over rising COVID-19 cases in the country. More than 28 million people are under lockdown in China. On Friday it reported the highest number of new COVID-19 cases in more than 10 months. The gains in Asia followed a late dip on Wall Street on Thursday. While U.S. stocks spent most of the trading session in positive territory, helped by the stimulus hopes, concerns over the cost of the package led to a modest decline toward the end of Wall Street trade.
S&P 500 e-mini futures turned lower on Friday after Biden’s remarks and were last down 0.222% at 3,783. “The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes.” The Dow Jones Industrial Average fell 0.22%, the S&P 500 lost 0.38%, and the Nasdaq Composite dropped 0.12%. On Friday, earnings season will kick into full swing with results from JPMorgan, Citigroup and Wells Fargo. Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chairman of Great Hill Capital in New York.
In the currency market, the U.S. dollar index, which had rebounded after hitting a nearly three-year low last week, was little changed on Friday at 90.27, and flat against the yen at 103.79, as Powell’s dovish statements offset support from the stimulus proposal. The euro nudged 0.05% lower to $1.2150. U.S. yields stepped back after earlier rising on higher inflation expectations. Benchmark 10-year Treasury notes yielded 1.1122%, down from a U.S. close of 1.129% on Thursday, while the 30-year yield dipped to 1.8514% from 1.874%. Oil prices, which had risen on a weak dollar and strong Chinese import data, were mixed by midday in Asia as COVID-19 concerns in China hit sentiment. Brent crude oil futures fell 0.27%, to $56.27 a barrel while U.S. crude was 1 cent higher at $53.58. Spot gold rose 0.24% to $1,850.77 per ounce.