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Exchange4free Global Forex Report (22/11/2017)

USD

Federal Reserve (FED) Chair, Janet Yellen, gave one of her last public speeches from the helm of the Federal Reserve on Tuesday, where she spoke at the Stern Business School in New York. Yellen reiterated that the key to a healthy US economy remains in raising interest rates in a way that allows the labour market to improve while moving inflation towards the Federal Reserve’s target. This needs to be done at a reasonable pace, as she warns that doing so too slowly could over tighten the labour market.

Tonight’s Federal Reserve meeting (due at 21:00 GMT +2) is expected to further solidify the 90% chance of a rate hike in December, as the US economy continues to grow, while unemployment declines. Last month’s figures from the jobs report showed unemployment levels fall to 4.1%, a 16 year low.

EUR

Germany has now become the Eurozone’s latest problem, as chancellor Angela Merkel suggests a flash election could be on the cards for Europe’s most prosperous economy. This, after coalition talks with two smaller parties collapsed on Sunday. Her partners in the outgoing government, the Social Democrats, have stated that they will not renew their alliance with the Christian Democratic Union of Germany (CDU).

The pressure being exerted on the Euro from the German coalition problems is expected to only keep the Euro on the back foot for the short term, with investors remaining positive for the medium to long term. Investors believe that Germany’s strong and ever improving fundamentals provide important insulation from political concerns.

GBP

The UK Budget release due this afternoon is the key focus surrounding the UK today. This is the perfect platform for Chancellor Hammond to paint a picture of the post-Brexit economy. Investors would love to set their eyes on a rosy future, and as per ING Strategy research, a well delivered budget could see the GBP / USD pair shoot past the 1.33 mark, and targeting 1.34.

The Sterling also finds strength in the news that UK cabinet is set to back Prime Minister Theresa May’s plan to increase the money on offer to the EU for its Brexit. This news is seen positive by investors as in increase would suggest that negotiations will push forward. The expectation is for the EU and UK to strike a deal within the next 3 weeks.

AUD

The Australian Dollar is currently overvalued and is trading above fair-value according to a valuation of the currency conducted by Unicredit, a global financial services provider. However the Australian Dollar is expected to rise further against the US Dollar and British Pound in 2018 before correcting back to its true worth in 2019. Unicredit calculated that the currency is overvalued by 11%.

The Australian Dollar was jumping around on Tuesday after recovering from hitting its lowest levels since June. The currency was supported by the strengthening of stocks and commodities.

The Governor of the Reserve Bank of Australia Philip Lowe, mentioned in his speech on Tuesday that rates are more likely to rise in the future if the economy continues to improve.

CHF

On Friday, the Swiss Franc lost ground against the US Dollar owing to positive news out of the US. As a result, the demand for the safe haven currency was reduced.

The Franc also weakened against the Euro to 1.1722 and has lost further ground, currently trading around 1.1630.

The Swiss Franc is still highly overvalued according to the Swiss Government and the Swiss National Bank (SNB). According to SNB chair, Thomas Jordan, forex interventions as well as negative rates are still fitting.

ZAR

The Rand gained some strength in late afternoon trading yesterday and the momentum seems to have carried through to today. The Market opened at 13.98 (USD/ZAR) and traded around 13.90 by lunchtime.

Much of the gain has been described as temporary and largely attributable to the resignation of Zimbabwean President, Robert Mugabe. The resignation may pave the way for economic revival in Zimbabwe and South Africa stands to benefit from the trade relationship if the past is anything to go by.

Rand gains may be temporary as we look toward the FED minutes later this evening for some signals regarding future interest rates in the US.

Further risk to the recent gains remains as ratings agencies S&P and Moody’s review South Africa’s credit rating on Friday as business confidence nears its lowest in almost 3 decades. Should both companies cut their rating it could potentially lead to outflows upwards of R80 billion.

NGN

The Central Bank of Nigeria (CBN) held its benchmark interest rate at 14% yesterday following a Monetary Policy committee meeting. The CBN also went on to state that the recovery of Africa’s largest economy from its recession remains fragile. The move matches expectations from most analysts, however, the expectation is for cuts of up to 100 basis points to take place in either July or September next year.

Nigeria’s economy grew by 1.4% in the third quarter of 2017, up from 0.7% in the second quarter of the year, when Nigeria emerged from its recession. The growth in Nigeria’s economy was largely driven by an increase in crude oil production and sustained growth in agricultural output.

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