Good morning
Its snowing! I know some areas had had it forecast but I don’t think it was expected to come this far south. Anyway, I awoke to a light covering and rather chunky looking snowflakes still falling. Nothing to get too excited about for now but as we know it doesn’t take much in this country for everything to stop.
It was a pretty quiet day in the currency world yesterday. GBPUSD traded within a 20 pips range for most of the day, only breaking a little higher to 1.2685 after the London close, EURUSD had a slightly wider range between 1.0535 and 1.0570 but nothing to get excited about, but late USD weakness did see the pair up at 1.0605. GBP yesterday made new short-term lows vs EUR, slipping to 1.1945 but did recover a little late on, now 1.1970. GBPUSD is 1.2665 as I type, EURUSD 1.0580.
Lagarde was speaking yesterday, she gave a pretty dismal outlook for Europe, saying the region has fallen behind in terms of tech and is facing strong competition from China. She made it clear Europe needs to adapt quickly to regain competitiveness, failure to do so will make it difficult for Europeans to enjoy the economic and social lifestyle everyone has becomes accustomed to. As happens so often, her comments had little impact on the currency markets.
UK PM Starmer met China’s Xi in Brazil, with Xi congratulating Starmer on his economic policies. Starmer was looking to rebuild a relationship with China but from what I read he mentioned human rights and Chinese officials promptly removed two British journalists from the meeting. Starmer has also announced a relaunch of UK/India trade talks as he looks to gain favour with other nations.
While Xi may be pleased with the recent budget, many are not, with farmers protesting in London today and now a group of some 79 retailers have asked for a meeting with Reeves over her decisions that they say will lead to price rises, shop closures and job losses. At some point Reeves may also have to explain how her CV has changed since her appointment as Chancellor after questions emerged over her role at HBOS. I remember a time when lying on ones CV was enough to end a career, particularly in the world of finance where lying on such matters must surely make you fail the ‘fit and proper’ criteria.
USDJPY had a wider range than most, from a morning low of 154.30 to an afternoon high of 155.30, but the USD selling into the London close brought it back to 154.65 and overnight it tested 154.00 as Japan’s Kato reiterated that moves in the currency market are being closely monitored. GBPJPY just around 195.40 as I type, having been up at 196.00 earlier this morning.
ZAR has had a good couple of days, boosted by S&P’s decision to raise the country’s outlook to positive from stable, on reduced political risks. USDZAR yesterday traded down from an open around 18.20 to a low around 17.96, while GBPZAR hit a low of 22.75 having been as high as 23.25 late last week. The South African central bank, SARB, are expected to cut rates 25bps to 7.75% on Thursday in a move I’d imagine is reasonably well priced in.
RBA minutes overnight confirm their desire to keep rates elevated in order to slow inflation that RBA deem as too high. AUDNZD holds above 1.1000, now around 1.1040 but struggles to break higher, the last two pushes up in early Oct and early Nov both ran out of steam around 1.1085, so for now we’re stuck in the 1.1000-1.1085 range. AUDUSD currently towards the lower end of recent trading just around 0.6505, while GBPAUD has shifted lower, now 1.9445. Meanwhile New Zealand are expected to see lower rates at next weeks RBNZ meeting, the question is whether they cut 25bps as seems to be expected, or go larger with a 50bps cut as ANZ are forecasting.
I am worried about the escalation in the Ukraine/Russia conflict. The possible use by Ukraine of US missiles hitting targets deep in Russia itself is something that many say has been needed for a long time, and I do think the UK and EU nations could follow suit. But there is a risk that Russia retaliates and I see Denmark, Norway, Finland and now Sweden are sending information to their citizens of how to prepare and cope in the event of war.
If it wasn’t so serious I would find it amusing that Russia are happy taking arms from China and Iran, and even use troops from North Korea in their invasion of Ukraine, but regard the use of foreign weapons on their soil as an act of war. Very worrying. I wonder whether Trump will be able to negotiate peace with his old pal Putin? Probably not, unless Ukraine are willing to give away land already lost.
EU inflation numbers out this morning rarely move away from expectations, as such I’m thinking they shouldn’t impact the market a great deal. CAD inflation this afternoon is likely to attract attention given the recent dovish talk, and indeed action, by BoC. We do seem to have a clear upside barrier in USDCAD at 1.4100, that area has been tested several times last Friday and again yesterday. After the London close the pair traded down to almost 1.4000, GBPCAD has pulled back to the 1.7750 region.
Early tomorrow morning we’ll have the latest UK inflation numbers. CPI is expected to show enough strength to bring it above the 2% target to 2.2% from 1.7% last time, there is some hope that core CPI will hold around 3.2%. Both PPI and RPI are also expected to shift to the upside, there is a risk that stronger inflation readings combined with the potentially inflationary effect of the recent budget will lead to BoE holding rates at 4.75% when we’d really appreciate another 25bps reduction.
Have a great day
- 10.00 EU HICP
- 10.00 BoE MPC Treasury hearings
- 11.00 German Buba monthly report
- 13.30 US building permits, housing starts
- 13.30 CAD CPI
- 18.10 Feds Schmid speaks
- 23.50 Japan trade
- 01.15 PBoC rate announcement
- 07.00 UK CPI, RPI, PPI
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