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Exchange4free Global Forex Report (30/05/2018)

USD

During Tuesday’s session, the US Dollar posted gains against most major currencies as traders shifted to safe haven currencies amids the latest developments in Italian politics, and was left trading around 1.1548 against the Euro. Strategists and analysts from Nordea Markets suggest that the US Dollar could climb even higher as liquidity is sucked from global financial system.

Market players and speculators are looking towards Friday, as the Federal Reserve of America will release their latest SOMA (System Open Market Account). Analysts believe that the latest SOMA could have a positive impact on the US Dollar, as it could be a step closer to normalizing the country’s balance sheet. Policy makers in the US are now able to start normalizing the balance sheet, as growth and employment levels have started to pick up and inflation levels are back to pre-financial crisis levels. The surge in the Dollar was also caused by a rise in yields. Currently the EUR/USD pair is trading around 1.15997.

EUR

The Euro has dropped to a 6 month low against the US Dollar which is owed to the political and financial issues being faced by Spain and Italy. Over the last 3 weeks the euro has fallen by almost 8% against the US Dollar.

Italy has been struggling to form a Government for the last 2 months. This didn’t seem to affect the euro but this week, when President Sergio Mattarella prevented two populist parties from forming a government, the Euro tumbled and the cost of borrowing for Italy rose significantly. Meanwhile in Spain, the Prime Minister Mariano Rajoy faces a vote of no confidence on Friday.

These issues bring the Euro’s value into question this week. And although the situation is reminding us of the financial crisis that happened in Greece; the Euro will be more threatened in this case as Italy and Spain bear more weight in the EU. Questions regarding a Euro breakup have started arising again as investors’ question the European Central Bank’s (ECB) next move.

GBP

The Sterling has experienced a difficult few weeks, but analysts and strategists warn that good news for the Sterling is unlikely as Brexit negotiations enter a more crucial phase during June. Brexit negotiations are causing uncertainty and this weighs heavily on the Sterling.

During May, the Pound Sterling weakened sharply against most major currencies due to a delayed Bank of England interest rate rise and growing concerns over the state of Brexit negotiations. Currently the Sterling lost almost 2.5% against the US Dollar. The only bright side for the Pound, is that it remains relatively stable against the Euro, as the Euro is struggling due to Italian Politics. Currently the GBP/USD pair is trading around 1.32705.

AUD

The Reserve Bank of Australia’s lack of willingness to increase the cash rate has been putting downward pressure on the Australian Dollar. AUD has been trading at a 12 month low against the US Dollar and two year low against GBP but it is still believed that its underperformance is nearing an end.

Today, the Australian Dollar has been giving mixed signals by strengthening against the current ‘safe’ currencies such as USD and JPY while weakening against the currently risky currencies such as the Euro.

CHF

Demand for the Swiss Franc remains high, as risk off sentiment keeps the safe haven currency trading under 0.99 CHF per USD, and the EUR/CHF cross trading around 1.1479, at the time of writing. Swiss National Bank (SNB) chairman Thomas Jordan, has stated that due to the fragile global markets, the SNB is being forced to maintain a loose monetary policy.

Investors will be watching Thomas Jordan, who is set to speak later today, and they will also be paying attention to GDP figures which are due tomorrow, where the expectation is for the year on year GDP to have moved up to 2.3%, from 1.9% previously.

ZAR

During Monday’s session, the South-African Rand posted slight gains after Friday’s affirmation by S&P Global Ratings Agency. S&P kept South-Africa’s foreign investment rating at BB+ and their outlook as “stable”, saying that the fiscal position was still weak, but the economy has shown slight improvement.

The Rand’s recovery was also due to the South-African reserve Bank, keeping the repo rate at 6.5%, which was in line with market expectations. Market analysts believe that the USD/ZAR pairt will fluctuate between 12.00 and 13.00 in the short run and the main driver will be the fluctuations of the US Dollar. Looking ahead, investors and speculators alike, will keep a close eye on the Producers Price Index data that will be released on Thursday. The PPI data will give an indication of how quickly the PPI is moderating and this data can influence the Rand positively or negatively. Currently the USD/ZAR pair is trading around 12.5759.

NGN

The Naira depreciated to the lowest level in eight months last week, the Central bank of Nigeria will this week increase intervention in the foreign exchange market and intensify liquidity mop up in the interbank money market, in a bid to try slow the depreciation of the nations currency.

The demand for dollars has increased recently, this is due to Foreign investors not reinvesting proceeds of investments in matured treasury bills. This is due to the decline in interest rate on the treasury bills. Investors are rather taking the proceeds out of the country which is creating more demand for Dollars.

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