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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.

 

16 / 04 / 21

 

British Pound

Reuters: The pound was steady on Thursday, rising slightly against the euro but struggling to regain momentum as market participants weighed indications of how UK’s lockdown-easing steps would affect the economic recovery. Sterling had a strong first quarter, helped by relief that a no-deal Brexit was avoided at the end of 2020, by the pace of the UK’s vaccine rollout and by a lessening of negative rates expectations. But it has had a weaker start to April, hurt by profit-taking, and has traded in a close range this week.


England re-opened all retail stores, hairdressers, gyms and pub gardens on Monday. Scotland, Northern Ireland and Wales are due to re-open different sections of their societies in coming weeks. English diners rushed back to restaurants this week and online job adverts have returned to pre-pandemic levels. Simon Harvey, FX analyst at Monex Europe, said sterling was at an “impasse”, where the lockdown easing measures had been priced in when they were announced and market participants are now waiting for data to show the impact. “Gauging how the UK consumer reacts to less constraints over its consumption patterns is going to be a very, very key driver over the next quarter,” he said. “We’re still quite bullish on sterling. We see it going up to the $1.40 level by the end of the month and we’re looking for these alternative data points and potentially more timely traditional data points for cable taking the next leg higher,” he said.


At 1529 GMT, the pound was at $1.3787, up 0.1% against the dollar. Versus the euro, it was up 0.2% at 86.79 pence per euro. The pair broke the key 0.85 level for the first time in a year at the start of April, before weakening sharply. Analysts also said that other countries would catch up on the UK’s pace of vaccination, meaning that the so-called “vaccine trade” will not continue to support the pound. “GBP has capitalised on expectations of a robust cyclical upswing, but we believe this looks increasingly priced-in,” HSBC said in a note to clients. “Likewise, the UK’s early vaccine gap is set to narrow as other nations ramp up their vaccination campaigns. If the cyclical supports fade in allure, GBP bulls may be vulnerable to a renewed focus on the sizeable UK twin deficits,” the note said. But ING strategists were bullish, writing in a note to clients that the pound’s bout of weakness versus the euro is fading, and they were looking at a “GBP recovery to EUR/GBP 0.85 this quarter.”

 

US Dollar

Reuters: The dollar headed for its worst back-to-back weekly drop this year amid an extended retreat in Treasury yields as investors increasingly bought into the Federal Reserve’s insistence of keeping an accommodative policy stance for a while longer. The benchmark 10-year Treasury yield dipped to a one-month low of 1.528% overnight, moving further away from over a one-year of 1.776% reached at the end of last month, even in the face of Thursday’s stronger-than-expected retail sales and employment data. 


San Francisco Fed President Mary Daly said on the same day that the U.S. economy is still far from making “substantial progress” toward the central bank’s goals of 2% inflation and full employment, the bar the Fed has set for beginning to consider reducing its support for the economy. That echoed Fed Chair Jerome Powell’s comments in several speeches over the past week that policymakers will look through near-term rises in prices amid ongoing slack in the labour market. The dollar index, which tracks the greenback against six major peers, dipped to an almost-one-month low of 91.487 overnight before recovering somewhat to 91.752 in the Asian session. It’s set for a 0.5% decline for the week, extending the 0.9% slide from the previous week.


The gauge, also known as the DXY, surged with Treasury yields to an almost-five-month high at 93.439 on the final day of March, on bets that massive fiscal spending coupled with continued monetary easing will spur faster U.S. economic growth and higher inflation, particularly compared to places like Europe. But bond and foreign-exchange markets now seem willing to give the Fed the benefit of the doubt that inflation pressure will be transitory and monetary stimulus will remain in place for years to come. The dollar is “still struggling to find its feet in April, even though the U.S. macro outperformance narrative could not be more propitious,” Westpac strategists wrote in a research note. “The DXY is trading like its topping out now, sooner than we expected,” and a break below 91.3 would confirm the downtrend, they said.


Retail sales increased 9.8% last month, beating economists’ expectations for a 5.9% rise, while first-time claims for unemployment benefits tumbled last week to the lowest level in more than a year, separate reports showed Thursday. The dollar traded at 108.825 yen, heading for a 0.8% loss for the week, following a 0.9% decline the previous week. The euro changed hands at $1.19585, set for a 0.5% weekly advance, adding to the previous period’s 1.3% surge. Some analysts also pointed to Wall Street’s strong gains, with the S&P 500 and Dow both posting record highs, as weighing on the traditionally safe-haven dollar amid increased risk appetite. “Lower U.S. bond yields and positive risk sentiment have once again been a cocktail fuelling a softer USD,” Ray Attrill, the head of foreign-exchange strategy at National Australia Bank, said in a note to clients.


The rally in equities has “driven a wedge between the strong data and the USD,” he said. Highly anticipated economic data from China on Friday ultimately had little effect on currencies, even as the world’s second largest economy posted record 18.3% growth in the first quarter year-on-year. The Chinese yuan slipped 0.1% to 6.5326 per dollar in the offshore market. In cryptocurrencies, Bitcoin stood around $62,850, near the record high of $64,895 reached on Wednesday, when cryptocurrency platform Coinbase COIN.O made its debut in Nasdaq in a direct listing.

 

South African Rand

Torfx: The Pound South African Rand exchange rate plummeted by over -1% today as increased risk appetite has buoyed demand for the risk-sensitive ZAR. The pairing is currently fluctuating around R19.62. The South African Rand (ZAR) also benefited from Wednesday’s stronger-than-expected South African retail sales report for February. The figure beat forecasts and rose by 2.3% in the second month of 2020, buoying confidence in the nation’s retail sector. 


Analysts at Reuters commented on the data: ‘South Africa’s retail sales rose for the first time in eleven months in February, data showed on Wednesday, defying forecasts of another downturn as purchases of furniture, household appliances and food jumped. ‘Retail sales rose 2.3% year on year in February following a revised 3.7% contraction in January. On a monthly basis sales were up 6.9%, but were down 0.9% and in the three months since December.’ A rally in US stocks has also helped to buoy demand for risk-correlated currencies like the South African Rand.


Pound (GBP) investors will be awaiting today’s speech from the Bank of England’s (BoE) Deputy Governor of Financial Stability Sir Jon Cunliffe. Any further bullishness about the outlook for the British economy from the BoE would be GBP-positive. The Pound South African Rand (GBP/ZAR) could continue to struggle, however, if risk sentiment improves and drives up demand for the South African currency.

 

Global Markets

Reuters: A batch of Chinese and U.S. economic data helped underpin global stocks near record highs on Friday, as investors priced in a solid global recovery from the coronavirus-induced slump. In Asia, markets were largely steady after China reported a sharp acceleration in first quarter growth, though the reading slightly undershot expectations while retail sales bounced strongly last month. Shanghai shares dipped 0.2% while the Chinese yuan eased. Analysts said the China data did little to change expectations of a strong recovery and further policy tightening to curb any excesses in property investments.


“Property investments were weaker but that’s no surprise given policy makers have been tightening loans to the sector while consumption is continuing a normalisation,” said Ei Kaku, senior strategist at Nomura. “On the whole the data is unlikely to have a big impact.” MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.2% while Japan’s Nikkei was almost flat. MSCI’s broadest gauge of world stocks ticked down 0.05% by mid-Asian trade following 0.89 percent gains the previous day to a record high. “U.S. economic data released yesterday was all strong, confirming the U.S. economy is firmly on a recovery track,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.


U.S. retail sales rebounded 9.8% in March, the largest increase since May 2020, in a gain that pushed the level of sales 17.1% above its pre-pandemic level to a record high. The brightening economic prospects were underscored by other data, including first-time claims for unemployment benefits tumbling last week to the lowest level since March 2020. Despite strong data, U.S. bond yields dropped, in part driven by Japanese buying, as they have began a new financial year this month. The 10-year U.S. Treasuries yield dropped to 1.529%, a five-week low, on Thursday and last stood at 1.578%, off its 14-month high of 1.776% set at the end of March. “The market has already fully priced in an U.S. economic recovery in the near term. And if the Federal Reserve will keep interest rates on hold for the next two to three years, no doubt the carry of U.S. bonds would be very attractive compared with Japanese or euro zone bonds,” said Chotaro Morita, chief fixed income strategist at SMBC Nikko Securities. The fall in long-term bond yields benefited stocks, and particularly tech shares, given the idea that their historically expensive valuations can be justified because investors would have no choice but to buy shares to make up for low returns from bonds.


On Wall Street, the S&P 500 advanced 1.11% while the tech-heavy Nasdaq Composite added 1.31%, nearing its record peak set in February. In the currency market, lower U.S. yields were a drag on the U.S. dollar. The euro stood at $1.1951, having hit a six-week high of $1.19935 overnight while the U.S. currency slipped to a three-week low of 108.61 yen and last traded at 108.89. Oil prices held firm after hitting a four-week highs on Thursday following positive U.S. economic data and higher demand forecasts from the International Energy Agency (IEA) and OPEC. Brent futures stood flat at $66.89 per barrel, while U.S. crude was also little changed at $63.36 per barrel, both on course for their first substantial weekly gains in six.

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