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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.

14 / 05 / 21

British Pound

Reuters: The British pound held close to recent highs on Thursday, withstanding a wider sell-off that has knocked risk currencies. Sterling had risen above $1.41 for the first time since February on Monday, helped by dollar weakness, market relief over Scottish election results, lockdown easings and the Bank of England raising its economic growth forecast. Better-than-expected British GDP numbers on Wednesday also supported the pound, although a dollar rise after better-than-forecast U.S. inflation data sapped some of its recent rally.


On Thursday, the pound fell 0.2% to $1.4028. The drop was modest given sharp falls in global stock markets and a deterioration in general investor sentiment. Against the euro, sterling weakened 0.1% to 86.035 pence. Analysts say a combination of a stronger UK economic rebound than expected and the belief that any Scottish independence vote is a long way off make the pound relatively attractive. “The better than expected March UK GDP yesterday underscored the bright outlook for the pound and the expected solid UK data this quarter should further support the currency,” ING analysts said in a research note. “We expect EUR/GBP to re-test the 85 level in the coming weeks. After the latest dip in GBP speculative positioning, sterling longs should start increasing yet again.”


CFTC positioning data showed that speculators reduced their net long position on the pound in the week to May 4. Sterling is the second best-performing G10 currency in 2021, helped by bets that Britain’s rapid vaccination drive will lead to a quicker economic rebound. The currency has also benefited from the Bank of England beginning to taper its bond purchasing programme, on the back of the improving economic outlook. Bank of England policymaker Jonathan Haskel said on Wednesday he was not too concerned about the medium-term inflation outlook in Britain, but would watch out for damage to the country’s productive capacity. British house price inflation hit its highest level since the late 1980s in April as buyers raced to take advantage of an extended tax break just as sellers retreated, a survey showed this week.

 

US Dollar

Reuters: The dollar took a breather on Friday but looks set to post weekly gains against a basket of currencies as investors weighed the risk of U.S. inflation rising faster than expected and prodding the Federal Reserve to hike interest rates sooner. A strong reading on U.S. wholesale prices and jobless claims on Thursday failed to spark a renewed uptick in Treasury yields, which some traders put down to the market already pricing in a degree of inflation worries. Moreover, the Federal Reserve has been sticking to its script that its stimulus will be in place for some time to support the economy, with officials viewing a spike in inflation as transitory.


“We’ve seen some surprise economic data. But because the Fed hasn’t budged an inch in its stance, markets won’t be able to keep talking up the inflation story,” said Masaru Ishibashi, joint general manager of trading at Sumitomo Mitsui Bank. In mid-Friday Asian trade, the dollar index stood at 90.707 , sitting on a gain of 0.5% so far this week and keeping some distance from its 2-1/2-month low of 89.979 set on Tuesday. Against the yen, the dollar stood at 109.50 yen, below Thursday’s one-month high of 109.785. The euro was fetching $1.2076, holding above Thursday’s low of $1.20515 while the British pound changed hands at $1.4047. The U.S. producer price index rose 0.6% in April after surging 1.0% in March. In the 12 months through April, the PPI shot up 6.2%. That was the biggest year-on-year rise since the series was revamped in 2010 and followed a 4.2% jump in March.


A separate report showed the number of Americans filing new claims for unemployment benefits dropped to a 14-month low of 473,000. Strong data, coming after a stunning jump in consumer inflation announced on Wednesday, added to the evidence inflationary pressure is building up in the United States as vaccine rollouts prompts economic normalisation. On Thursday, however, U.S. bond yields dipped, with the 10-year Treasuries yield slipping to 1.651% after hitting a five-week high of 1.707%. All the same, given the U.S. economic normalisation is gathering steam, market players say underlying inflation concerns will remain for now. “Inflation will remain a big theme for markets in coming few months. The Fed says it will be transitory but markets are asking ‘what if it turns out not to be transitory,” said Yukio Ishizuki, senior strategist at Daiwa Securities. Worries about an over-heated economy could intensify especually if the Biden administration manages to press ahead with its $4.1 trillion jobs and infrastructure plan. “People think it will be scaled back considerably by Republicans. But if can get a deal close to a full amount, that would get a lot of people nervous,” said Seiya Nakajima, chief economist at Office Niwa. 


In crypto currencies, bitcoin flirted with 2-1/2-month lows after Tesla Inc chief Elon Musk reversed his stance on accepting the digital currency and on news of a U.S. probe into Binance, one of the world’s biggest cryptocurrency exchanges. The world’s biggest cryptocurrency last traded at $49,155 , having fallen to as low as $45,700 on Thursday, its lowest level since March 1. The second-biggest cryptocurrency ether was firmer at $3,783.5, though it was still off a record high of $4,380.64 hit on Wednesday. Also moving in the opposite direction from bitcoin, dogecoin, a relatively new coin promoted by Musk, jumped as much as 20% after he said he was involved in work to improve the token’s transaction efficiency.

 

South African Rand

Reuters: South Africa's rand recovered early on Thursday, after sliding the previous day as a surprisingly strong rise in U.S. consumer prices raised fears that the Federal Reserve would raise interest rates, weighing on risk appetite. The rand traded at 14.0875 against the dollar as of 0624 GMT, 0.37% firmer than its previous close. The rand, which hit a 16-month high on Tuesday, has had a strong run since March, prompted by lower rates in the developed world, a surge in global commodity prices and signs the local economy is on track for a better-than-expected recovery.


Data on Wednesday showed U.S. consumer prices increased the most in nearly 12 years in April, intensifying concerns over rising inflation and raising expectations that the central bank would tighten its monetary policy. Higher U.S. interest rates dent the appeal for riskier but high-yielding currencies such as the rand. Traders will now turn attention to U.S. retail sales numbers on Friday for guidance on whether upward pressure on prices will persist. In fixed income, the yield on the government bond due in 2030 was flat at 9.075%.

 

Global Markets

Reuters: Japanese shares led a rebound in Asian markets on Friday, building on the lead from investors on Wall Street snapping up stocks that would benefit most from an economic revival. The rally interrupted a three-day rout for stocks globally, as market jitters over accelerating U.S. inflation were calmed by Federal Reserve officials reiterating that price pressures from the reopening of the economy would prove transitory. Tokyo’s Nikkei jumped 2.2%, while MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.8%, Chinese blue chips rose 1.7%, while Australia’s benchmark rallied 0.8%.


“U.S. equities were up, so there is a bit of relief in Asia,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. However, “we certainly are going to have some volatility near-term,” as markets react to CPI and other economic indicators for clues on the path for U.S. monetary policy. The Fed may open the discussion on tapering its asset purchases as soon as the policy meeting next month, he said. Data on Wednesday showed annual U.S. consumer prices unexpectedly rose the most in over a decade, prompting markets to wager on earlier policy tightening and sending stock markets tumbling. However, the reassurance from Fed officials about the transitory nature of inflation has for now stemmed the equities sell-off.


Among Fed speakers overnight, Governor Christopher Waller signalled that rates won’t rise until policymakers either see inflation above target for a long time or excessively high inflation. “Inflation, it seems, matters less today than yesterday,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note to clients. “The buy-the-dip crowd were out in force,” suggesting that recent selling was “a pullback within a bull market,” he said. S&P 500 futures pointed to further gains of 0.4% when the market reopens, following a 1.2% rally in the index on Thursday. The Dow Jones Industrial Average ended the day up 1.3% and the Nasdaq Composite advanced 0.7%. The rally was led by shares in small-cap companies, chip makers and transportation providers - businesses that stand to gain as the United States emerges from the pandemic-induced recession.


Benchmark 10-year Treasury yields, which had spiked 7 basis points following Wednesday’s CPI print in the biggest daily rise in two months, fell by nearly 4 basis points overnight and eased further in Asian trading to 1.6539%. The U.S. currency was steady against a basket of its major peers, with the dollar index consolidating around the 90.70 level for a second day on Friday, following Wednesday’s 0.6% jump. Gold traded at around $1,822 an ounce at the end of the week, largely unchanged from the previous day, when it recovered some of Wednesday’s losses. In cryptocurrencies, bitcoin recovered to just below $50,000 on Friday, after plunging to a 2-1/2-month low of $45,700 in the previous session when a media report of a regulatory probe into crypto exchange Binance added to pressure from Tesla Inc chief Elon Musk’s reversing his stance on accepting the digital currency. Much smaller rival dogecoin jumped as much as 20% to $0.52 after Musk said on Twitter that he was involved in work to improve the token’s transaction efficiency.


Oil prices remained subdued following a drop on Thursday, pausing a recent rally as investors turned their attention to the coronavirus crisis in India, and as the top U.S. fuel pipeline network resumed operations after being shut due to a cyber attack. Brent crude declined 0.4% to $66.79 a barrel, while U.S. West Texas Intermediate crude slipped 0.3% to $63.62 a barrel.

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