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18 / 01 / 19
Reuters: The British pound rose to a two-month high against the euro on Thursday, extending recent gains on growing expectations that Britain can avoid a no-deal Brexit. In a tumultuous week for British politics, Prime Minister Theresa May’s Brexit deal suffered a heavy defeat in parliament but she won a subsequent vote of confidence, removing some political uncertainty for now. Although a multitude of options remain on the table, including fresh elections or even a second referendum vote, market analysts believe the risks of a hard no-deal Brexit have receded considerably despite the headlines. The Labour Party could back a second Brexit referendum if its proposals for leaving the EU are shunned by the government and a no-deal scenario looks likely, Labour leader Jeremy Corbyn said on Thursday. “There was an initial move higher on the Corbyn comments today to see if he is supporting a move for a second referendum,” said Lee Hardman, currency analyst at MUFG in London.
“Generally the market is more optimistic that following the heavy defeat the other day that we will head towards a softer or no-Brexit outcome.” The pound also firmed towards a two-month high against the dollar. It was trading 0.25 percent up at $1.2906, inching towards a mid-November high of $1.2930 hit last week. Against the euro, the pound firmed to 88.19 pence, its strongest level since late November. Britain would vote to stay in the EU by a 12 percentage point margin if it was given another vote, the highest level since the shock 2016 Brexit referendum, a YouGov poll taken on Jan. 16, showed. Mohammed Kazmi, a portfolio manager at UBP in Geneva, said investors were now likely to be more focussed on Brexit scenarios that are becoming skewed in the direction of a softer exit from the European Union, or an extension of Article 50 that could delay the exit and pave the way for a second referendum. “Either of these scenarios should play out positively for UK assets, especially as it is clear that cross-party consensus on a Withdrawal Agreement will lead to the government having to rule out a no-deal Brexit scenario as well, removing this fear for markets and narrowing the possible outcomes,” he said.
Reuters: The dollar was firm against the yen on Friday as growing optimism of progress in Sino-U.S. trade talks supported broader appetite for risk. A Wall Street Journal report on Thursday that U.S. Treasury Secretary Steven Mnuchin had considered easing tariff imposed on Chinese imports lifted sentiment though a Treasury spokesman later denied the report. Kumiko Ishikawa, senior analyst at Sony Financial Holdings, said while Beijing and Washington continue to negotiate, “expectations are that things will go into a positive direction.” Against the yen, the dollar tacked on 0.1 percent to 109.35 yen for its fourth-day of gains against the Japanese currency and just off a two-week high of 109.40 touched overnight.
The dollar index, which measures the greenback against six major peers, was largely flat at 96.056 after briefly rising to a near two-week high of 96.264 during the previous session. The index, which has been hobbled since late last year by the Federal Reserve’s cautious stance on delivering further rate hikes, has managed to rebound about 1 percent from a three-month low of 95.029 touched just over a week ago. Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the latest round of trade talks aimed at resolving the trade standoff between the world’s two largest economies. The dollar held firm against the euro, while the pound was steady after rising overnight on hopes of a second referendum on Britain’s membership in the European Union following Prime Minister Theresa May’s crushing defeat in parliament of her Brexit deal.
South African Rand
MFX: The rand was marginally softer against major global currencies on Thursday morning, weakening further in the afternoon following the South African Reserve Bank's decision to leave rates unchanged at 6.75%. With the US Federal Reserve no longer assumed to be in an aggresive hiking cycle and China pledging to reflate it's economy, the global environment is arguably more supportive of risk assets than it was last year November affording the bank the opportunity to keep rates on hold, at least in the short term. The weaking in the rand can be attributed to the SA Reserve Bank explaining there may only be one hike this year where previously they had projected a few rate hikes.
Further to the central bank's announcement, Governor Lesetja Kganyago continued to defend the bank's independence which is enshrined in the Constitution, in light of the ANC proposing a review of its mandate in the manifesto launched last week. Global focus is on Brexit developments, with UK Prime Minister Theresa May having until Monday to come up with a new Brexit plan, after narrowly surviving a vote of no confidence in her leadership on Wednesday night. As at time of writing, the rand was at R13.72 to the dollar, R17.81 to the pound and R15.63 to the euro.
Reuters: Asian stocks advanced on Friday as a report of progress in U.S.-China trade talks stirred hopes of a deal in their tariff dispute and supported risk sentiment. The Wall Street Journal reported on Thursday that U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30. U.S. stocks rallied following the report, but pared some of those gains after a Treasury spokesperson told CNBC that Mnuchin had not made any such recommendations. WSJ also reported that U.S. Trade Representative Robert Lighthizer has resisted Mnuchin’s idea. For the day, all three major U.S. indexes were up, led by a surge in industrial stocks. Even the whiff of progress in the months-long Sino-U.S. trade war helped boost risk sentiment.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.7 percent. The index has gained 1.4 percent this week.The Shanghai Composite Index was up 0.8 percent. Australian stocks rose 0.5 percent, as did South Korea's KOSPI while Japan's Nikkei gained more than 1 percent to a one-month high. The euro was little changed at $1.1393 after dipping slightly overnight. The common currency was on track for a weekly loss of 0.7 percent. U.S. crude oil futures extended gains after rising the previous day on a bounce in Wall Street and news that OPEC sharply curtailed production in December. U.S. crude futures added 1 percent to $52.61 per barrel. The contracts have gained more than 2 percent this week. Brent crude was up 0.8 percent at $61.67 per barrel and on track to gain 2 percent on the week. Elsewhere in commodities, palladium as 0.6 percent higher at $1,403.50 an ounce after rising to an all-time high of $1,434.50 overnight. Demand has recently outstripped supply for the metal, used in emissions-reducing catalytic converters for cars. Palladium also appeared to get a boost from hopes for further government stimulus in China, the world’s biggest auto market. Spot gold was steady at $1,291.56 an ounce, having relinquished its spot as the most expensive precious metal to palladium early in December.
HONG KONG OFFICE
FXStreet: GBP/USD is currently trading in the 1.2950s and bulls stay in control in a technical trade which is quickly leading the bulls into overbought territory on the short term time frames as the price reaches towards the 61.8% fibo retracement of the late Sep decline. GBP/USD is taking its cues from both a rather ambiguous fundamental standpoint and a techncial position on the charts with momentum in its wings. First of all, the initial rally following a monstrous defeat for PM May's Brexit plan was unexpected. The analyses that have been bound about justifies that demand for sterling under the soft Brexit hat whereby the worst case scenario for the pound, a hard Brexit, has been shelved no sooner than PM May's leadership had been put into question. Nevertheless, the pound stayed bid and consolidated into the no-confidence vote.
The pound came under further demand following when Theresa May's government survived the no-confidence motion yesterday. The vote was in favour of the government of 325-306 as expected. Since then, May has reached out to party leaders in the Commons to meet to discuss Brexit options which again has been taken as a positive for sterling under the soft Brexit narrative.
Reuters: The U.S. dollar was left flat in Thursday afternoon trade after first rising on a report that U.S. Treasury Secretary Steven Mnuchin had considered easing tariffs imposed on Chinese imports, then retracing those gains after his office denied the claim. Mnuchin discussed lifting some or all tariffs on Chinese goods and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30, the Wall Street Journal reported on Thursday, citing people familiar with the internal deliberations.
Earlier, the greenback rose against a euro dragged lower by soft economic data, while the pound took off on hopes of a second referendum on Britain’s membership in the European Union. Against the euro, the dollar strengthened as much as $1.1367, its highest in nearly two weeks. It was last at $1.139, with the single currency still weaker on soft data out of the euro zone. Inflation data for the European Union showed price pressures receding further from the central bank’s target, complicating the situation for the European Central Bank which currently expects to raise interest rates later this year. The euro has fallen 0.70 percent against the dollar since Tuesday morning, when Germany reported its economy grew by 1.5 percent in 2018, the weakest rate of expansion in five years.
FXStreet: USD/JPY started off the day overnight down at 108.68 and went on to score a NY session high of 109.40 following speculation that the Sino/US trade spat was about to be resolved due to headlines that Treasury Sec. Mnuchin was in favour of lifting the tariffs in a bid to calm markets and ease tensions with Beijing.
Valeria Bednarik, the Chief Analyst at FXStreet, explained that the pair is has broken above the 61.8% retracement of its latest daily decline, also above the 100 SMA, which extended its decline to converge with the mentioned Fibonacci retracement at around 109.05: "Technical indicators in the mentioned chart hold within positive ground, although without clear upward momentum, easing modestly from their highs. As said on previous updates, the current 109.20 price zone is a strong static resistance that the pair needs to clearly surpass to be able to extend its gains, as it is the level in where the pair was trading ahead of December flash crash."
Reuters: Asian stocks gained early on Friday, as hopes for a thaw in the U.S.-China trade conflict fed investor appetites for risk assets. The Wall Street Journal reported on Thursday that U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30. Following Wall Street’s lead, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.25 percent. The index has gained nearly 1 percent this week. Australian stocks rose 0.6 percent, as did South Korea's KOSPI while Japan's Nikkei gained 0.7 percent.
U.S. crude oil futures extended gains after rising the previous day on a rebound in Wall Street and news that OPEC sharply curtailed production in December. U.S. crude futures added 0.13 percent to $52.14 per barrel. The contracts have gained 1.1 percent this week.