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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.

22 / 01 / 21

British Pound

Reuters: Sterling set a fresh 2-1/2 year high against the dollar and a new 8-month high against the euro on Thursday on hopes that Britain’s brisk pace of COVID-19 vaccinations would lead to a relatively quicker rebound in economic growth. With a Brexit deal in the bag, Britain’s lead in vaccinations, along with lowered expectations of negative interest rates from the Bank of England, has boosted the pound against the euro. The pound is up 1.2% against the single currency this year, and 0.7% this week. Speculators increased their long positions on the pound last week to their highest since September last year.


By 09:28 GMT, sterling was up 0.6% against the dollar, having hit a fresh 2-1/2 year high of $1.3745. Against the euro, it hit a new high of 88.30 pence, its highest since May 2020. ING said it expected sterling to gain to 88 pence per euro. “If you look at the current status of the vaccination process, the UK is leading here in Europe and it’s also still vaccinating at a faster pace than in most of the big EU countries,” said Mikael Milhøj, senior analyst at Danske Bank. “Also, you can see that the support for getting vaccinated in the UK is much higher than in Germany, Italy, Spain and especially of course in France. And that means that the UK economy may exit this COVID-19 crisis before the rest of Europe does and that I believe should have a positive impact on sterling.” Milhøj added that he does not expect the Bank of England to take UK interest rates into negative territory.


Bank of England Governor Andrew Bailey said on Wednesday he expected Britain’s economy would recover strongly as the country moves ahead with vaccinating its population against COVID-19. Bailey’s comments in a BoE online event for the public came a day after the central bank’s chief economist Andy Haldane said he expected the economy to begin to recover “at a rate of knots” from the second quarter. The BoE is due to publish new growth forecasts on Feb. 4 alongside a report on the feasibility of cutting interest rates below zero to boost growth, as has been done already in the euro zone and Japan. British inflation gathered speed in December, starting what is expected to be a climb this year as pandemic-fighting measures, Brexit and a recovery in the economy combine to push up costs for consumers and businesses. Consumer prices rose 0.6% in annual terms after a 0.3% increase in November, the Office for National Statistics said. A Reuters poll of economists had pointed to a rate of 0.5%.

 

US Dollar

Reuters:The dollar declined versus major peers on Thursday as optimism that new U.S. administration’s massive stimulus package will bolster growth sapped demand for safe-haven currencies. Riskier commodity currencies were supported as Asian stocks followed U.S. equities in rising to new records after Joe Biden, who has laid out plans for a $1.9 trillion pandemic relief package, was sworn in as president. “Risk sentiment is quite positive right now and we expect it to remain so this year, with growth expected to rebound quite strongly,” said Shinichiro Kadota, senior currency strategist at Barclays Capital.


The Canadian dollar and Norwegian crown are likely to outperform, while European currencies lag, he said. The greenback should also strengthen this year against the euro as the United States recovers faster than most other countries, he added. The U.S. currency slipped 0.2% to in Asia, declining for a third day. It touched a three-year low at overnight, after the Bank of Canada opted not to cut interest rates. The dollar slid 0.4% to 8.456 Norwegian crowns, also a third day of declines. The Aussie dollar rose 0.4% to 77.74 U.S. cents, adding to a 0.7% rally in the previous session. Australia boasted another solid rise in employment in December, data released Thursday showed. Biden was sworn in as the 46th president of the United States on Wednesday, vowing to end the “uncivil war” in a deeply divided country reeling from a battered economy and a raging coronavirus pandemic that has killed more than 400,000 Americans.


North of the border, the Bank of Canada said Wednesday that the arrival of a COVID-19 vaccine and stronger foreign demand is brightening the economic outlook in the medium term, opting to hold its key overnight interest rate at 0.25%. Money markets had been watching the prospect of a so-called micro rate cut of less than 25 basis points. The dollar lost 0.2% at 103.59 yen on Thursday, another safe haven currency, after dipping to a two-week low of 103.33. The Bank of Japan kept monetary policy unchanged on Thursday while revising up its economic forecast for next fiscal year. The euro gained 0.2%, reversing a similar decline from the previous session, to trade at $1.2135. The European Central Bank also decides policy Thursday, with no change expected. European countries are struggling to contain the novel coronavirus amid worries that a new variant could lead to more stringent lockdowns and more economic pain.

 

South African Rand

South Africa's rand firmed in early trade on Thursday, as optimism that the new U.S. administration will unveil massive stimulus package to bolster growth boosted demand for riskier but higher-yielding currencies. At 06:30 GMT, the rand  traded at 14.8775 versus the dollar, 0.15% firmer than its previous close. "Risk-on environment continues to favour rand," said Bianca Botes, executive director at Peregrine Treasury Solutions in Pretoria. "The rand held steady overnight, as optimism around stimulus remains high." Riskier currencies were supported after Joe Biden, who has laid out plans for a $1.9 trillion pandemic relief package, was sworn in as U.S. president.


South African Reserve Bank (Sarb) Governor Lesetja Kganyago has announced that the repo rate will remain unchanged at 3.5% In November 2020 the bank also announced that it would make no changes to the repo rate. Prior to that announcement, the bank's Monetary Policy Committee had cut the repo rate by 275 basis points last year to try and counter the effects of negative growth due to COVID-19. In an emergency meeting in April 2020 the bank cut the repo rate by 100 basis points, followed by a 50 basis point cut to 3.75% during its May meeting. 


The MSCI's index of emerging market stocks .MSCIEF rose 1% to a record high, while currencies added about 0.2%. "Only once a successful ratification in Congress emerges will it become clear which effect of the support measures will dominate on the financial markets: the USD-positive effect of rising (real) rate expectations or the USD-negative effect of rising inflation expectations," Esther Reichelt, FX and EM analyst at Commerzbank wrote in a note. Emerging market currencies and bonds had come under pressure from a recent rise in U.S. treasury yields over the past few weeks, as investors priced in increased U.S. debt issuance, as well as an eventual rise in inflation.

 

Global Markets

Reuters: Asian shares slipped off record highs on Friday as investors took profits after a recent rally that was driven by hopes of U.S. economic stimulus by newly inaugurated President Joe Biden. Sentiment was also hit by worries of new coronavirus restrictions in China which reported 103 COVID-19 cases on Friday. MSCI’s broadest index of Asia Pacific stocks outside of Japan extended losses in afternoon trading to be last off 0.6% at 720.17 points following three straight sessions of gains. The index is up a stellar 8.8% in January so far, after hitting an all-time high of 727.31 on Thursday. Analysts expect Friday’s losses to be short-lived as they predict a strong upswing in global growth supported by record low interest rates the world over.


“2021 begins with expectations of reopening in second-half, as the key macro theme and consensus forecasts project a V-shaped recovery in global growth and corporate earnings,” Paul O’Connor who heads the UK-based multi-asset team at Janus Henderson. “Although many countries and sectors will bear the scars of the COVID-19 shock for years to come, 2021 is expected to see some decisive steps down the road to recovery as restrictions on economic activity ease as the year progresses, unlocking pent-up consumer spending,” O’Connor added. The MSCI Asia ex-Japan index has jumped 3.7% so far this week, reflecting relief over an orderly transition of power in the United States and strong expectations that U.S. stimulus will provide continued support for global assets.


Republicans in the U.S. Congress have indicated they are willing to work with President Joe Biden on his administration’s top priority, a $1.9 trillion U.S. fiscal stimulus plan, though some are opposed to the price tag. Democrats took control of the U.S. Senate on Wednesday, though they will still need Republican support to pass the program. Australia’s benchmark index eased 0.3% while Japan’s Nikkei fell 0.4%. Chinese shares started on the backfoot with the blue-chip CSI300 index down 0.3% and Hong Kong’s Hang Seng was off 1.4%. Travel plans were in limbo for tens of millions of people in China’s northern cities who have been under some kind of lockdown amid worries that undetected coronavirus infections could spread quickly during the Lunar New Year holiday, which is just weeks away.


Overnight on Wall Street, both the S&P 500 and Nasdaq Composite closed at record highs. In currency markets, the U.S. dollar paused after three straight days of losses, though it is still down 0.7% so far this week. Against the Japanese yen, the dollar has slipped 0.28% so far this week. The commodity-sensitive Australian dollar is up 0.6% this week while the euro has climbed 0.8% in the period. The greenback’s recent slide has been led by investors ploughing money into higher-yielding currencies on optimism about a rapid economic recovery led by massive U.S. stimulus. Popular cyptocurrency bitcoin fell to an almost three-week low on Friday on profit-taking and worries about extra regulations. It is on track for its worst weekly performance since early 2020, down 12.3% so far. In commodities, oil prices were weighed down by worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer. Brent and U.S. crude were each 73 cents lower at $55.37 and $52.40 per barrel respectively. Spot gold was down 0.6% at 1,859.4 an ounce.

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