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FX

Further Retracement of Recent USD Losses Appears Likely

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Further Retracement of Recent USD Losses Appears Likely  

  • USD’s rebound against risk currencies (commodity FX, Asia EM and GBP) is likely to continue, supported by strong US data, the latest being January ISM Services that surges to its highest since 2005 at 59.9 and as US political considerations take a back seat to market developments for now. Expectations are that the Continuing Resolution to keep US government agencies open that expires on February 8 may likely be extended into late March. Citi analysts also see the US FY2018 budgeting process extending until nearly April, though raising or suspending the debt limit likely would have to be addressed before late February–early March. Citi analysts expect another suspension of the debt ceiling.

 

 

Sterling the worst performer overnight given weak UK data and Brexit
concerns 

  • Sterling’s vulnerability continues on the back of (1) PMI weakness as the January composite indicator is on track for its weakest quarter since the EU referendum aftermath, (2) Brexit risks as UK PM Theresa May is forced to rule out any form of customs union with the EU after Tory Brexiteers threaten a mass walk-out, according to the UK daily Sun. This comes ahead of a key week for Brexit negotiations with PM May having a working lunch with EU’s chief Brexit negotiator Michel Barnier and her own Brexit chief David Davis followed by Brexit ‘technical discussions’. The talks will focus on governance withdrawal issues, Ireland and transition, and (3) the Bank of England (BoE) meeting this week.

 

 

Commodity Bloc: Further data slump in Australia ahead of today’s RBA
meeting

  • Further weak data in Australia with December retail sales coming in weaker at -0.5% versus -0.2% expected and the trade deficit widening to AUD -1.36bn versus +200mn expected. The data comes ahead of today’s Reserve Bank of Australia (RBA) board meeting where a neutral bias is expected to be maintained. With inflation and growth forecasts unlikely to be changed and risks to financial stability currently contained, Citi analysts do not expect the RBA to signal a shift away from the long standing neutral bias. 

     

  • Citi analysts also expect little change to the Reserve Bank of New Zealand (RBNZ) policy statement later this week though it could possibly make a negative -¼ppt revision to the near-term yearly CPI forecast to reflect the Bank’s forecasts against the lower-than-expected Q4 CPI data.

 

 

 

This is an extract from the Daily Currency Update, dated 6th February 2018. Please approach a Citigold Relationship Manager if you would like more information

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