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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.

 

20/ 06 / 19

LONDON OFFICE

 

British Pound

FXStreet: With the US Dollar’s (USD) across the board slump offering additional strength to rest of the major currencies, the GBP/USD pair extended the previous rise towards one week high of 1.2690 ahead of the London open. Traders may now watch over May month retail sales from the UK and the BOE’s monetary policy decision, while simultaneously observing British politics, for fresh impulse. Not only FOMC’s refrain from signaling monetary policy “patience” but a downward revision to inflation forecast and fresh dot-plot inflated chances of a rate cut from the US central bank. With this, it joined rest of the central bankers who are on the bearish stand citing challenges to global economic growth. Adding to the FOMC-led declines of the USD could be the latest risk aversion wave that dragged the US 10-year treasury yields to sub-2.0% level for the first time since November 2016.


On the other hand, the British Pound (GBP) benefited from receding political uncertainty at home as the front runner Boris Johnson comes closer to being the UK Prime Minister. Retail sales, the key to British GDP, may contract -0.5% from 0.0% on a monthly basis while likely citing 2.7% growth versus 5.2% prior on YoY format. The Bank of England (BOE) is expected to keep its monetary policy intact but might not avoid joining the bear chorus of global central banks sometime during later 2019. At the political front, the final round of Tory-voting will deliver 2 candidates for the British PM today. During next-week postal votes will be called from rest of the conservatives, around 160,000. The US has fewer catalysts remaining than the initial jobless claims and the Philadelphia Fed manufacturing survey result. The jobless claims might soften to 220K from 222K during the week ended on June 14 while the manufacturing gauge could decline to 11.0 from 16.6 previous readouts.

 

US Dollar

Reuters: The dollar was on the defensive on Thursday after the Federal Reserve signalled it was ready to lower interest rates to combat growing global and domestic risks. The Fed on Wednesday left interest rates unchanged as widely expected but said the case for lower rates was building, suggesting it could ease monetary policy as early as next month as it took stock of rising trade tensions and growing concerns about weak inflation. The dollar index against a basket of six major currencies was little changed at 97.188 after losing more than 0.5% overnight. “Even though the market had anticipated much of what the Fed said, the dollar’s fall was still a relatively large one,” said Daisuke Karakama, chief market economist at Mizuho Bank. “The main question is no longer if the Fed will cut rates in July, but whether the easing will be by 25 or 50 basis points.”


With U.S. yields falling after the Fed meeting, the dollar retreated against the yen. The two-year Treasury yield touched 1.737% on Wednesday, its lowest level since November 2017. The greenback lost more than 0.3% to brush 107.720 yen, its lowest since Jan. 4, coming under further pressure after Bloomberg reported that U.S. President Donald Trump believes that he has the authority to replace Fed Chair Jerome Powell and demote him to be a board governor. Immediate focus for the yen was on the Bank of Japan’s monetary policy decision due later on Thursday. The BOJ is expected to keep its ultra-loose monetary policy unchanged but interest in markets will be on whether the Fed’s dovish tilt would have any bearing on its Japanese counterpart.

SOUTH AFRICA OFFICE

 

South African Rand

BDL: The rand was little changed on Wednesday afternoon but retained Tuesday’s nearly 2% gain on the dollar, as global markets awaited the latest decision by the US central bank.  The rand firmed on Tuesday after European Central Bank (ECB) president Mario Draghi said the bank may consider loosening monetary policy should inflation remain low. By 2.35pm, the rand was flat at R14.5325/$, while it had weakened 0.13% to R16.2824/€ and 0.26% to R18.2887/£. The euro was little changed at $1,1204. The benchmark R186 government bond was stronger, with its yield falling seven basis points to 8.195%. Bond yields move inversely to bond prices. Gold was flat at $1,345.34/oz while platinum had gained 0.34% to $804.73. Brent crude was down 0.77% to $61.76 a barrel. Efficient Group chief economist Dawie Roodt said although the rand was benefiting from external factors, it was still reeling from ANC secretary-general Ace Magashule’s comments on changing the mandate of the Reserve Bank.


“The US is suggesting that they are going to cut interest rates, the ECB is hinting at introducing quantitative easing and the rand has been totally over-hammered in the past few weeks. Those are the three factors contributing to the appreciation of the rand,” Roodt said. “The rand should have appreciated much more and should have gone below R14.30/$ if it were not for the ANC’s comments on the nationalisation of the Reserve Bank and talks of quantitative easing.” Consumer inflation for May accelerated 0.1 percentage point to 4.5% year on year, Statistics SA said earlier, a littler higher than the Bloomberg analysts' consensus of 4.4%. Overnight the Fed announced they would keep interest rates unchanged as expected but signalled they were ready to lower interest rates to combat growing global and domestic risks if necessary. This has resulted in further gains for emerging market currencies with the rand now trading at R14.29 to the dollar, R18.13 to the pound and R16.11 to the euro.

 

Global Markets

Reuters: A gauge of global stock markets strengthened on Wednesday, bolstered by gains on Wall Street, and benchmark U.S. Treasury yields and the dollar dropped after the Federal Reserve signaled possible interest rate cuts over the rest of this year. The U.S. central bank held interest rates steady, as expected, but said it “will act as appropriate to sustain” the country’s economic expansion as it approaches the 10-year mark and dropped a promise to be “patient” in adjusting rates. The market expects the Fed could cut rates as soon as its next meeting, in July. “I think it’s right in line with market expectations, puts a July cut in play,” said Brett Ewing, chief market strategist at First Franklin Financial Services in Tallahassee, Florida. Nearly half of the Fed’s policymakers now show a willingness to lower borrowing costs over the next six months. Even policymakers who did not write down a forecast for a rate cut this year believe “that the case for somewhat more accommodative policy has strengthened,” Fed Chairman Jerome Powell said in a news conference following the meeting.


Investors’ hopes that the Fed would soon cut interest rates were fueled on Tuesday when European Central Bank President Mario Draghi hinted at economic stimulus, comments that drove up stocks and weakened yields. “You have global central banks in a nearly orchestrated positioning, prepared to act if respective economies falter,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “Clearly the market is embracing it.” MSCI’s gauge of stocks across the globe gained 0.70%. The index rose to its highest point in six weeks. On Wall Street, the Dow Jones Industrial Average rose 38.46 points, or 0.15%, to 26,504, the S&P 500 gained 8.71 points, or 0.30%, to 2,926.46 and the Nasdaq Composite added 33.44 points, or 0.42%, to 7,987.32. The pan-European STOXX 600 index ended little changed ahead of the Fed decision. Investors will now turn attention to U.S.-China trade relations, with a meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping set for next week’s G20 meeting in Japan. “You have the G20 summit coming up in a week and a half, said Eric Donovan, managing director, OTC FX-interest rates at INTL FCStone in New York. “It’s kind of ridiculous to think that the Fed was going to cut today.” Benchmark 10-year U.S. notes last rose 8/32 in price to yield 2.0302%, from 2.058% late on Tuesday. The dollar index, which measures the greenback against a basket of currencies, fell 0.41%, with the euro up 0.31% to $1.1226. U.S. crude settled down 0.3% at $53.76 a barrel, and Brent settled at $61.82 a barrel, down 0.5%.

 

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