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Exchange4free Global Forex Report (13/12/2017)

USD

The USD has enjoyed some limited gains on the back of positive news regarding the tax reform, which could help the Greenback end the year on a high. The Republicans are closing in on a final tax bill, and are expected to have the vote to pass it next week. Tax cuts are expected to lead to economic growth, possibly leading to faster rate increases than originally anticipated.

The Fed is meeting later today and is widely expected to raise interest rates by 25 basis points to 1.5%. However, seeing as this hike is largely priced in, investors will be watching the Fed closely for the updated economic projections along with chair Janet Yellen’s last press conference. Projections for the markets for 2018 currently indicate that there will be 3 – 4 hikes in 2018, this could be readjusted following this evening’s meeting.

Other factors that could affect the markets later today includes the release of Core and Non-core CPI data, where the figures are expected to come in at 0.2% (month on month) and 0.04% (month on month) respectively.


EUR

EURGBP remained flat at 0.8817 this morning despite the Brexit discussions. With the value of EURGBP being so dependent on the outcome of Brexit, all focus will be on the Europeans Council’s decision to be made on Friday. The currency pair has been trading between 0.8690 and 0.9050 but there is an expectation that it will break to 0.8580.

Year on year, however, the ongoing EURUSD trend shows that the Euro is on track to accomplishing its highest annual gain against the US Dollar since 2003. EURUSD is currently trading around 1.1740 with the Euro realizing a gain of 10.88% so far this year.

GBP

Most strategists seem to agree that the Pound Sterling is set for further gains in the near term as Brexit negotiations progress. The fact that the Sterling did not have stronger gains against the USD and EUR following the return of Prime Minister Theresa May from Brussels last week, could suggest that there is still a sense of unease among traders over whether talks really will progress onto the subjects that they are really interested in; trade and transition.

Should the markets’ become more comfortable that talks will indeed proceed onto the details of trade and transition, the GBP/USD is expected to push towards 1.40 and the EUR/GBP would also come under pressure, this would be due to an easing of concerns of a hard Brexit, and risk premium attached to the British currency subsides.

AUD

According to Westpac, the AUD/USD pair is likely to drop to 0.68 cents by June 2018. Economies such as the US, UK and Canada are expected to announce increases in their interest rates in the coming year and this would result in a less appealing Australian Dollar. Furthermore, the Australian economy has been struggling with 2 consecutive quarters indicating negative GDP growth.

With all this being said, we cannot forget that Australia has enjoyed the past 26 years of consecutive growth. Given this, surely the economy at some point should take a downward turn? Having left the interest rate on hold for the past 16 meetings, Australia’s central bank may still have room for monetary policy intervention if needed.

CHF

Although the Swiss Franc has depreciated almost 6% against the Euro over the second half of the year, it still remains somewhat overvalued in the eyes of various analysts. The weaker Swiss Franc should assist the economy to some extent as export prices will become more competitive in the coming months should this trend remain. 


Swiss employers are also fairly upbeat about anticipated growth in the jobs market, especially those engaged in the export market. This renewed business confidence is further evidence of economic recovery in the region.

GDP for the Swiss economy sits at approximately 0.45% for the year thus far compared with 1.4% in 2016.

ZAR

The South African Rand was stronger this morning, assisted by a dip in the Dollar and jostling for positions ahead of economic and political events locally and offshore. Consumer Price Index for South Africa slowed to 4.6 percent year on year in November. In October consumer inflation was at 4.8 percent.

Market attention is also focusing on court battles between factions of the ruling African National Congress ahead of a party conference at the weekend where President Jacob Zuma’s successor is set to be chosen. The race for presidency is mainly being contested by deputy president Cyril Ramaphosa (the market favourite) and Jacob Zuma’s ex-wife Dr. Nkosazana Dlamini-Zuma, whom is being favoured by the president.

The favourite at the moment is Cyril Ramaphosa as he is seen to win the ANC nomination next week. This news helped the Rand strengthen by almost 20 cents against the US Dollar and 30 cents against the British Pound over the past few weeks. We could see the rand get punished if Zuma and his camp get their way, as in the past he has been able to escape any sticky situations he encounters and somehow always get the result that he needs.

NGN

The Central Bank of Nigeria continues to inject funds into the interbank foreign exchange market, as their efforts to boost liquidity, alleviate Dollar shortages, and generally attract foreign inflows into its bond market continue. However, this pushes up costs for the government, which is already struggling to contain a widening deficit and reduce debt service cost.

The latest injection of USD was valued at USD 210 million, and took place this morning.

Exchange4free Global Forex Report (06/12/17)
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