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Global Forex Report (15/11/2017)

USD

Producer Price Index (PPI) data released by the US Labour Department on Tuesday showed an increase by more than expected in October. PPI increased to 2.8% in October from 2.6% in September, which is the largest increase since February 2012. This increase was driven by a spike in the cost of services and supports the expectations of a gradual rise in inflation in the near future.

GBP/USD fell from 1.32 to as low as 1.3065 on Monday due to data out of the UK. The pair has since stabilised at around 1.3150.

EUR

The Euro has shot past 1.18 against the Dollar following fresh signs of economic growth. Germany lead this front as data released showed that their economy had expanded by 0.8% in the third quarter, up from the 0.6% recorded in the previous quarter. This data was well supported by a rise of 0.6% in Eurozone GDP.

Despite all the positive signals being emitted by the Eurozone and the fact that the Euro is the best performing G10 currency this week, some investors remain skeptical about the long term outlook for the currency.

A key Bank of America Merrill Lynch survey for November indicates that 12% of investors believe that the Euro is overvalued. Nonetheless, the general attitude towards the Euro is positive, as the consensus seems to be that the European Central Bank will not only have to stop printing money (Quantitative Easing), but it will also need to start raising interest rates within the next 2 years.

GBP

It is reported that 40 members of parliament are ready to sign a letter of no confidence in Theresa May – this means that just 8 more MP’s are needed to trigger a vote of no confidence. This move which could lead to a conservative leadership battle, as there is no clear alternative leader in the picture. This makes markets extremely nervous and the currency volatile, as fears are that May could be replaced by someone looking to pursue a ‘hard’ Brexit.

Data released a couple of hours ago showed the average Earnings for September rose better than expected 2.2% YoY (year on year), while unemployment held steady at 4.3%. This did little to boost the Sterling as dismal wage growth further reinforces the Bank of England’s projection that UK inflation might be peaking around current levels.

AUD

Earlier in the week the AUD saw some mild strength moving to 0.7630 (AUD/USD) from a previous level of 0.7610 after a survey of business activity in the region came in surprisingly positive. This was some much needed relief following the release of disappointing data out of China the week before.

Today the Australian market received some less than impressive wage growth data leading to the currency retreating once again from previous gains seen earlier in the week. The AUD lost 0.6% against the US Dollar following the announcement by the Australian Bureau of Statistics that wage growth had grown by 0.5% quarter-on-quarter and missed expectations of 0.7%.

CHF

The outgoing Swiss minister of Tourism is upbeat about the upcoming skiing season this year following a somewhat noticeable depreciation in the Franc over the past year. Looking at the CHF/EUR pair over the past year revealed a sharp decline in the value of the Franc towards the end of July this year. This means is that it is effectively 6.5% cheaper for Europeans to go skiing in Switzerland compared to a year ago.

While the Euro fared fairly well against the Franc over the past year, the USD has not. The Franc has shown a minor appreciation against the USD YoY (year on year).

The Swiss department of tourism expect a rise of 3.7% in tourism, which should further aid economic growth in the region.

ZAR

Dollar weakness brought along some relief for the Rand, but an analyst has warned that events in Zimbabwe could have an impact on the currency. On a longer term basis, South Africa could benefit from an economic and political change in Zimbabwe, but for now the risks are probably that the troubles add mildly to Rand pressure.

On the local front we have news of the ANC NEC meeting and we know that the Eastern Cape provincial election result still stands and that Mantashe and Ramaphosa remain in office.

President Jacob Zuma is also trying to put through his plan for free higher education by bypassing treasury, which is likely to have more dire consequences for the Rand. The Heher Commission (established in 2016 by President Jacob Zuma to investigate the feasibility of free higher education) has stated that South Africa does not have the money for free higher education.

All South Africans will be waiting for next week Friday as rating agencies will release rating reviews. A further downgrade is expected and the market seems to have already priced this in. Currently we are looking at a EUR/ZAR of 17.00 GBP/ZAR 18.93 and USD/ZAR 14.33.

NGN

Nigeria’s Central Bank sold USD at 306 Naira for the second time since September, after maintaining a level around 305 on the official spot market for two months.

Although minor, this change indicates a change in foreign exchange policy according to some traders in Nigeria.

Nigeria last injected USD 195 million into the foreign exchange market on Monday, as the country continues with its attempts at narrowing the gap between the official and unofficial rates (The USD/NGN is currently trading around 360 on the parallel market, vs the 306 on the official market).

Earlier this week the Nigerian Senate approved president Buhari’s request to borrow 5.5 billion US Dollars, of which 3 billion will be used to facilitate maturing bonds and the remainder to finance the budget deficit.

Exchange4free Global Forex Report (08/11/2017)
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