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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.

 

19 / 06 / 18

LONDON OFFICE

 

British Pound

Reuters: Sterling held near seven-month lows on Friday as strong U.S. data and a hawkish Federal Reserve prompted investors to buy the greenback, while the Bank of England is expected to strike a cautious note at a review next week after some weak data. The pound edged up to $1.3290, still near to seven-month lows of $1.3205 touched late last month. Against the euro, sterling dropped 0.2 percent to 87.43 pence but remained above the 88-pence range it had traded at before the euro’s selloff on Thursday. Focus shifts to the Bank of England’s meeting next week and Prime Minister Theresa May’s ongoing efforts to convince her colleagues about her plans for Brexit.

 

May saw off a parliamentary rebellion this week over parliament’s role in the Brexit process and ensured her government’s all-important EU withdrawal bill passed. But her Conservative Party remains divided over how much of a say parliament should have on the final terms of a deal with the EU. That deal, which Britain and the EU need to agree before Britain’s exit in March, will define their future relationship. “Our base case for Brexit remains a ‘decent Brexit’ where the UK leaves the single market and most likely also the customs union but strikes a free-trade deal agreement ... We expect a lot of noise ahead of the important EU summits later in June and in October,” Danske Bank said in a note. Markets expect the BoE to keep rates on hold next week, but will be looking for any signs that the central bank is more comfortable with how the economy is performing after a difficult first quarter.

 

US Dollar

Reuters: The dollar edged up towards a seven-month high on Monday as investors bet the United States and China would avoid a full-blown trade war, although tensions between the two slowed its gains. The dollar index versus a basket of six major currencies crept up 0.1 percent to 94.862. The index was close to 95.131, a peak scaled on Friday, thanks to the dollar soaring more than 1 percent last week after the U.S. Federal Reserve gave a hawkish signal on interest rates while the European Central Bank struck a dovish tone. On top of last week’s Fed, ECB and the Bank of Japan policy meetings, the currency markets also weighed a U.S.-North Korea summit and the renewed trade tensions between the world’s two biggest economies.

 

The greenback navigated through those events, last of which was a decision by the United States on Friday to enact tariffs on $50 billion in Chinese goods. Soon afterward, China’s official Xinhua news agency said Beijing would impose 25 percent tariffs on 659 U.S. products, ranging from soybeans and autos to seafood. “The reaction by currencies to the trade developments has been mostly limited as the U.S. measure and China’s response were in line with expectations,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo. “A further escalation of U.S.-China trade tensions is of course a risk scenario. But the current tariffs, even if implemented, will hardly dent the global economy and the market also has to ponder about a scenario in which the two countries try to defuse tensions.” The dollar was down 0.2 percent at 110.44 yen, weighed down as risk appetites cooled on the back of falling Tokyo shares. The Nikkei fell on Monday with sentiment hurt by a combination of trade concerns and a strong earthquake that hit the western Japanese city of Osaka. Even when natural disasters and regional tensions hit close to home, the yen is often viewed as a safe haven currency, partly because of the resilience provided by Japan’s current account surplus.

 

South African Rand

BD Live: The rand staged a slight comeback on Friday morning, taking its cue from the overseas markets. The euro fared better against the dollar in early trade, with markets appearing to have absorbed the implications of the European Central Bank’s (ECB) surprise pledge on Thursday to keep interest rates lower for the next 18 months. The euro initially took a big knock on the announcement by the ECB, which also disclosed that its unconventional monetary policy stimulus, known as quantitative easing, would be phased out in December. "The kicker to the statement was that interest rates [would not change] for at least 18 months, which makes the US the shining light in the world economy as they have decent growth while in an interest-rate hiking cycle," TreasuryOne currency dealer Andre Botha said. The slightly better euro played out positively for the rand, though not enough to shake the latter’s losses for the week.

 

The rand has been at the mercy of unforgiving global developments over the past three months, though local developments have also added a negative tone. Power utility Eskom’s decision to implement power cuts conspired to push the rand to lows of R13.48/$ on Thursday, its lowest point since mid-December, before bouncing back slightly. "The threat of power outages is worrying at the time when we are battling to find bright spots in the economic data," said Halen Botha, market analyst at ETM Analytics. Eskom started load shedding for the first time in years on Thursday night due to constraints to supply as a result of industrial action. The weaker rand fuels inflation, though it gives exporters a competitive edge. Local bonds were weaker in early trade, with the yield on the benchmark R186 fetching 8.98% from its last settlement of 8.93%. At 10.39am, the rand was at R13.3986 to the dollar from R13.4592, R15.5289 to the euro from R15.5656 and R17.7743 to the pound from R17.8535. The euro was at $1.1590 from $1.11570.

 

Commodity Currencies

Reuters: Commodity-linked currencies sagged on the back of sliding crude oil prices. The Canadian dollar traded at C$1.3184 per dollar after retreating to a one-year low of C$1.3210 on Friday. The Australian dollar was little changed at $0.7442 after plumbing a five-week low of $0.7426 and the New Zealand dollar lost 0.25 percent to $0.6928.

 

Brent crude futures fell to a six-week low of $72.45 a barrel on Monday in the wake of reports that top suppliers Saudi Arabia and Russia would likely increase production at the June 22 OPEC meeting in Vienna. The OPEC meeting “will be one of this week’s key events due to the way oil prices shape economic and price views and thus impact yields and currencies,” said Koji Fukaya, president at FPG Securities in Tokyo.

HONG KONG OFFICE

 

British Pound

FXStreet: The GBP/USD pair held on to its weaker tone through the mid-European session, albeit has managed to bounce around 25-pips from session lows. After Friday's modest recovery attempt, the pair came under some renewed selling pressure at the start of a new trading week and dropped to an intraday low level of 1.3226. Reemerging hard Brexit concerns and fading prospects for an eventual BoE rate hike move were seen as key factors weighing on the British Pound. However, a subdued US Dollar price action, led by escalating US-China trade tensions and a weaker tone around the US Treasury bond yieldshelped limit deeper losses, with the pair once again finding some buying interest ahead of the 1.3200 round figure mark. 

 

In absence of any major market moving economic releases, any incoming Brexit headline and speeches by influential FOMC members - Atlanta Fed President Raphael Bostic and San Francisco Fed President John Williams, might produce some short-term trading opportunities. The key focus, however, would be on the latest BoE June monetary policy decision on Thursday, where the central bank is widely expected to maintain status quo and hence, the vote count would become more relevant in determining the pair's next leg of directional move.

 

US Dollar

Reuters: The dollar fell against the yen in early Asian trade on Tuesday after U.S. President Donald Trump’s threats of more tariffs on China raised worries about an escalating trade war between the world’s two largest economies. The Japanese yen strengthened to 110.02 against the dollar, up as much as 0.47 percent on the day, after President Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods, fuelling trade war worries with Beijing.

 

The ongoing trade dispute between the United States and China knocked the yuan to 6.4660 per dollar, its weakest in more than five months in the offshore market. President Trump late on Monday threatened to impose a 10 percent tariff on $200 billion of Chinese goods, escalating a tit-for-tat trade war with Beijing. In a statement, Trump said he had asked the U.S. trade representative to identify the Chinese products that would be subject to the new tariffs. He said the move would be in retaliation for China’s decision to raise tariffs on $50 billion in U.S. goods. “The latest headlines from Trump are pushing investors to risk-off-mode,” said Shintaro Ikeshima, chief manager of forex and financial products trading division at Mitsubishi UFJ Trust and Banking Corp.

 

The Australian dollar sank to a one-year low of A$ 0.7391 as the U.S.-China trade spat escalated and base metal prices slid. The Canadian dollar weakened to a one-year low of C$ 1.3237 overnight, before paring some of its losses, as investors worried about Canada's trade feud with the United States. The euro remained under pressure due to a dispute in Germany’s governing coalition and expectations the European Central Bank will hold interest rates steady into 2019.

 

Japanese Yen

FXStreet: The risk is being sold in Asia as US and China appear increasingly headed towards a full-fledged trade war. Consequently, the bid tone around the anti-risk JPY strengthened, pushing the USD/JPY pair below the 200-day moving average (MA) of 110.22. The spot hit a session low of 110.02 and was last seen trading at 110.15. 

 

President Trump has asked the US Treasury to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent." The move comes after China slapped a 25 percent tariff on 545 American imports in retaliation to Trump's decision to impose tariffs on $50 billion worth of Chinese imports, which was announced Friday. The equities are clearly not liking the tit-for-tat tariffs and the rising risk of a full-blown trade war. As of writing, S&P 500 futures are down 0.55 percent. The USD/JPY pair will likely find acceptance below 110.00 if the Shanghai Composite reports losses in early trade. 

 

Global Markets

Reuters: Asian stocks extended a global downturn on Tuesday, while the safe-haven yen rose as U.S. President Donald Trump threatened new tariffs on Chinese goods in an escalating tit-for-tat trade war between the world’s two biggest economies that has rattled financial markets. S&P 500 futures were off 0.6 percent, pointing to a another down day for Wall Street shares which slipped on Monday. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent. Japan's Nikkei lost 0.45 percent, South Korea's KOSPI edged down 0.1 percent while Australian stocks added 0.3 percent.

 

In commodities, crude oil markets remained volatile ahead of Friday’s OPEC meeting at a time when Russia and Saudi Arabia are pushing for higher output. Brent crude futures fell 0.3 percent to $75.11 a barrel after rallying 2.5 percent overnight.

 

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