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07 / 12 / 18
Reuters: Sterling extended gains on Thursday thanks to a broadly weak dollar though concerns on how the British parliament votes on Prime Minister Theresa May’s Brexit deal next week prompted investors to remain broadly sidelined. The British currency hit a 1-1/2 year low earlier this week as May battles to get the Brexit deal she negotiated with the European Union through parliament in a vote scheduled for Tuesday with the treaty facing heavy opposition from lawmakers both for and against Britain leaving the bloc. But a broadening dollar weakness on Thursday against most of its rivals on the back of falling U.S. Treasury yields offered some respite to the battered pound. Sterling rose 0.3 percent to $1.2787 and moving further away from a June 2017 low of $1.2659 hit earlier this week. Against the euro and the yen, the pound was flat at 89 pence and 143.63 yen respectively.
The proportion of investors looking to raise their holdings of UK assets fell to 15 percent from 21 percent in the third quarter, according to a State Street Survey, indicating investors are growing wary as Brexit talks approach a crunch point. The pound and the British stock market top the list of bearish bets among global investors due to Brexit concerns though that could lead to a big snap back if an orderly Brexit or no-Brexit are the outcome. Currency derivative markets painted a picture of relative calm on Thursday as investors remained broadly cautious.
Reuters: The dollar struggled to recover in Asian trade on Friday, hobbled by fresh speculation that a widely expected rate hike later this month could be the last before Federal Reserve hits the pause button on its tightening cycle. Investors have been alarmed by recent sharp falls in U.S. treasury yields, with an inversion of the yield curve signaling a sharp economic slowdown or even a recession down the road. Their immediate focus was on November U.S. non-farm payrolls, unemployment and wage data due to be released later today for clues to how the world’s top economy is faring. “Arguably, one of the strongest parts of the U.S. economy has been the labor market,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone. “If we see any cracks appearing in there, the U.S. dollar will start to fade off.” Dollar investors were given more reason to be cautious after the Wall Street Journal reported Fed officials are considering whether to strike a wait-and-see attitude after a likely rate increase at their meeting in December.
The dollar index, which measures the greenback against a basket of six major peers, was virtually flat at 96.802. The index shed 0.3 percent during the previous session, closing at one-week low and down 0.9 percent from a 17-month peak hit on Nov. 12. The benchmark U.S. 10-year Treasury yield was last at 2.896 percent after dipping overnight to its lowest level since late August. The dollar has slipped after Fed Chairman Jerome Powell said last week that U.S. interest rates were nearing neutral levels, which markets interpreted as signaling a slowdown in rate hikes. If the Fed raises interest rates as expected at its Dec. 18-19 meeting, it would be the fourth hike this year, and investors are focused on how much further the tightening cycle has to run. “The guidance going forward will be key to yields and equity market moves, which right now foreign exchange markets seem to be reacting to,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank. Interest rate futures implied traders see no more than one rate increase from the Fed in 2019, compared with previous expectations for possibly two rate hikes, according to CME Group’s FedWatch program.
SOUTH AFRICA OFFICE
South African Rand
BDLive: After weakening back over R14/$, R16/€ and R18/£ on Thursday, the rand managed to claw its way to R15.97/€ and R17.94/£ by 7am on Friday morning. But it failed to get back into the 13s against the dollar, settling at about R14.05/$ after weakening to R14.21/$ from R13.83/$ on Thursday. Thursday’s weakening of the rand was generally blamed on SA’s third-quarter current account deficit coming in at R176.6bn, a deterioration from R167.4bn in the second quarter. Peregrine corporate treasury manager Bianca Botes said in a note e-mailed on Thursday night that the “soft” current account figure added to the gloomy outlook on the rand already created by load-shedding and its potential effect on economic growth in 2019 along with parliamentary approval to amend section 25 of the constitution to open the way for land expropriation without compensation.
“Since SA, along with other emerging markets, has high debt which is mostly foreign denominated, the ability to service this foreign debt diminishes as US interest rates rise, putting strain on an already severely strained local fiscus,” Botes said. The Reserve Bank is scheduled to release November’s foreign exchange reserves on Friday morning, which are expected to have remained at about October’s R50.17bn. Schultz warned that SA is still running a twin deficit and not attracting enough foreign direct investment, which makes the rand volatile. “The rand is likely to remain vulnerable in the event of a deterioration in investor risk appetite,” said Capital Economics economist William Jackson. Els said investment is “pretty weak” at the moment but should improve. The JSE may halt a two-day slide, judging from a muted rebound in Asian markets on Friday morning after US President Donald Trump indicated a truce in his trade war with China was on again.
Reuters/FXStreet: Forex today saw mild risk-on action with Chinese yuan pushing higher against the greenback and JPY crosses picking up a bid, tracking mild gains in the Asian equities. The Dow Jones Industrial Average (DJIA) which was down more than 700 points at one point Thursday, staged a V-shaped recovery after the Wall Street Journal (WSJ) reported that the Fed is considering whether to signal a new wait-and-see mentality at their December meeting. The late recovery in the US stocks likely put a bid under the Asian equities. Major names like Japan's Nikkei, Shanghai Composite, South Korea's Kospi reported moderate gains. As a result, JPY crosses regained poise. Notably, the AUD/JPY rose 0.10 percent to 81.69, having clocked a low of 80.93 in the overnight trade. The risk assets may have also received a boost from Trump's tweet with China's comments on their commitment to achieving a trade deal.
On Friday, the dollar was steady against the euro at $1.1378. Against the Japanese yen, it tacked on 0.1 percent to 112.79 yen. The single currency had gained 0.3 percent against the dollar during the previous session while the yen rose about a quarter of a percent. The Canadian dollar sat at C$1.3388, basically unchanged from Thursday’s close. The loonie had hit a 1-1/2-year low of C$1.3445 against the greenback overnight after the Bank of Canada suggested the pace of future rate hikes could be more gradual. The Australian dollar was flat at $0.7236, not far off a three-week trough of $0.7192 hit on Thursday.