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FX

Headwinds for GBP

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Headwinds for GBP                        

  • Sterling is in focus overnight on the back of: (1) BoE Governor Carney’s walking back hawkishness in an interview; (2) UK retail sales taking a hit in March, albeit weather-related, and (3) the UK Upper House voting against a key part of PM Theresa May’s Brexit policy that rules out joining the customs union. The defeat may signal more challenges ahead of Brexit talks over Britain’s future trading relationship with Europe.

 

USD tactically lifted

  • US Treasury yields hit fresh monthly highs as crude oil prices rise – with Brent and WTI trading to a high of $74.33/bbl (+85c) and $69.15/bbl (+68c) respectively. The gains in yields lend tactical support to USD, though the USD Index (DXY) still remains below the key 90.00 level. Support for USD also comes from an additional two sources – the US Philly Fed index at a higher-than-expected 23.2 (vs 21.0) with April prices paid rising sharply to 56.4 (vs 42.6) and following the Trump-Abe press conference that sees a market rather relieved that no fresh comments are made by Trump on Japan’s yen policy.

     

  • The overnight gains in USD may be short-lived as (1) the gains in oil and its global inflationary implications are more likely to elicit a stronger reaction from the ECB than other G10 central banks, given its single inflation mandate and its recent signals of a potential shift in forward guidance in June; (2) In Japan, the next BoJ board meeting may see an omission to the quantity of JGBs that the BoJ targets in its annual purchases (JPY80trn). This may encourage some market participants to interpret this as a signal towards moving to a faster exit strategy and could encourage yen to rally.

 

 

EUR: ECB may shift forward guidance in June

  • EUR briefly hits 1.2400 once again overnight as ECB sources suggest there will be changes to ECB’s forward guidance in the June meeting though more tweaks than anything ‘revolutionary’. Citi analysts note that “the Governing Council has penciled in June as the meeting to adjust policy … ECB President Draghi may end up slightly more hawkish than markets expect.”

     

 

 

Commodity Bloc: NZ CPI underwhelms, CAD vulnerable to profit taking post a cautious BoC

  • New Zealand’s Q1’18 CPI slips to 18-month low of 1.1% YoY (as expected) as QoQ CPI comes in at 0.5% versus 0.4% expected. The RBNZ targets inflation in 1-3% band with a 2% midpoint and gives RBNZ more time to retain its current neutral guidance. RBNZ Governor Orr in comments today emphasized the importance of the 2% midpoint as what the RBNZ is “aiming for”.

     

  • CAD will be the focus tonight as markets await the Canadian March CPI data. At this week’s BoC meeting, Governor Poloz had already outlined a cautious stance while reinforcing BoC’s ‘datadependent’ status. Citi analysts still see the BoC hiking twice in 2018 – July and October. Rates markets currently discount 22bp for the July meeting and a total of 45bp by the end of the year.

 

 

This is an extract from the Daily Currency Update, dated 20th April 2018. Please approach a Citigold Relationship Manager if you would like more information.

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

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This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
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