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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.

17 / 08 / 18

LONDON OFFICE

 

British Pound

Reuters: Sterling languished near 14-month lows on Thursday, and strong British retail sales did little to support the currency hamstrung by fears about Britain leaving the European Union. Hot weather and the World Cup boosted retail sales in July but the pound remained flat against the dollar around the $1.27 level. A strong dollar and mounting fears that Britain will fail to secure an agreement before it leaves the EU in March have hurt the pound. It has shed 12 percent of its value since April and on Tuesday sank to $1.2662, its weakest since June 2017, falling against the dollar for a 12th straight day.

 

Few saw a Bank of England interest rate hike earlier this month as a vote of confidence in the economy, since Britain’s future, and access to European markets, remains in doubt. “Future interest rate rises now seem a distant prospect and Brexit continues to cause uncertainty... even this good economic performance is unlikely to translate into a lasting boost for sterling,” said Lee McDarby, an executive at currency brokers Moneycorp. Against a surging euro, the pound traded broadly flat at 89.47 pence per euro.

 

US Dollar

Reuters: The dollar was little changed against other major currencies on Friday after nudging away from 13-1/2-month highs amid easing risk aversion and as investors awaited the next developments in the U.S.-China trade saga. The dollar index, a measure of the greenback’s strength against a basket of six major peers, was steady at 96.647. It had climbed to 96.984, its highest since late June 2017 on Wednesday during a week in which a plunge by the Turkish lira to record lows and concerns over China’s economic health hit emerging market currencies, driving up demand for the safe-haven greenback.

 

The dollar lost steam, however, after China and the United States agreed on Thursday to hold a new round of trade talks on Aug. 21-22, helping stem risk aversion in the broader markets. “The ‘risk on’ mood generated by news of the U.S.-China trade talks is weighing on the dollar, while prompting some buy backs of the euro, which has been hit earlier this week by Turkish concerns,” said Shin Kadota, senior strategist at Barclays in Tokyo. “Next week, the main focus will likely shift to U.S.-China trade issues from Turkey with the Chinese delegation visiting Washington and as $16 billion in new tariffs on Chinese good are due to take effect.”

SOUTH AFRICA OFFICE

 

South African Rand

BD Live: The rand staged a modest recovery in mid-morning, trade on Thursday, with sentiment around the local currency and broader emerging-market assets remaining fragile. The magnitude of the recent slide has raised inflation concerns, coming as concerns mount that the local economy possibly contracted in the second quarter. A contraction will mean that SA is in a technical recession, which is defined as two successive quarters of contraction. The scenario will punch holes in the "new dawn" narrative championed by President Cyril Ramaphosa. The rand is still down nearly 3% against the dollar, heading for a third consecutive weekly loss. While sustained rand weakness breeds inflation by pushing up the cost of imported goods, such as fertilisers in the case of agriculture, exporters tend to benefit from the weakness.

 

At the very least, the weaker rand cushions the struggling local platinum and gold industry against the low dollar-denominated platinum and gold prices. Earlier in the week, South African Reserve Bank deputy governor Daniel Mminele tempered expectations of a potential hike in interest rates in the near term, saying the Bank would be guided by evidence of the building inflationary pressures. Mminele’s comments on Monday came amid the tumult in the rand and other emerging-market currencies, including the Turkish lira and Indonesia’s rupiah. In an effort to defend the value of the rupiah, the Bank of Indonesia hiked interest rates on Wednesday — its fourth so far in 2018. "This volatility is unlikely to improve over the next couple of days; the market is still trading like a rat cornered by a snake," Standard Bank trader Warrick Butler said in an e-mailed note to clients. "We could easily see this wild currency back to [Wednesday’s] lows or highs just depending on headlines and what the market still makes of the [dollar] versus emerging markets. Flows are still erratic with no-one seemingly keen to commit to any positioning, and who can blame them?" The rand has suffered the collateral damage of poor sentiment towards emerging markets amid jitters over Turkish economic crisis. The higher US interest and the dollar has also hurt the rand. At 10.35am, the rand was at R14.4485 to the dollar, from R14.5693, at R16.4471 to the euro from R16.5314 and at R18.3890 to the pound from R18.5046.

 

Australian Dollar

Reuters: The dollar nudged up 0.1 percent to 110.99 yen, on track to end the week virtually flat. The Australian dollar edged down 0.1 percent to $0.7255 after Reserve Bank of Australia (RBA) Governor Philip Lowe said on Friday that interest rates will stay at record lows “for a while yet” as inflation remains lukewarm and there is still spare capacity in the labour market.

 

The Aussie had gained 0.3 percent the previous day following news of the new round of U.S.-China trade discussions.

 

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