Pound bulls hoping to see a big beat on the July inflation numbers were left disappointed, as the data merely met expectations. Although off its lows, sterling remained under pressure after breaking the $1.27 handle overnight following yesterday’s news of weaker-than-expected growth in wages, and amid ongoing concerns over a no-deal Brexit outcome.
Once again, the market is taking it personally. How many times have come here in the past year and a half playing Lord Rothschild to warn you we are dealing with a similar market from the late 30’s? What happened was I’ve been talking about it a lot longer but Rothschild went public so it gave the rest of us who are awake a lot of credibility. Still, the market went higher.
Another week has flown by and what a disastrous one it has been for the likes of the Turkish lira and to a lesser degree the British pound, but once again it has been a good for the US dollar. Next week should be equally exciting as there are a few important data releases to look forward to, while the ongoing situation in Turkey could bring about further volatility – not just for the lira but the stock markets too.
The U.S. dollar appreciated versus most major pairs on Friday. The Japanese yen outperformed the greenback as a safe haven, but all other major currencies suffered heavy losses during the week. Tense trade developments between China and the United States and Friday’s drop in the Turkish lira dragged emerging and developed markets lower as US sanctions were doubled.
The economic situation in Turkey has been a powder keg for months, and it’s finally found a spark. While investors have never truly trusted Turkish President Recep Tayyip Erdogan, he’s shredded his last vestiges of credibility in recent months by appointing his son-in-law as the country’s finance minister and espousing his belief that lower interest rates were needed to fight inflation, the exact opposite of economic orthodoxy (and your humble author would argue, all the empirical evidence of centuries of central banking); indeed, Erdogan recently stated, “interest rates are the mother and father of all evil."
After a sharp slide, the pound has finally caught a bid today. While it is too early to suggest that a low has been hit, today’s rebound is certainly a welcome relief for the pound bulls. The British pound/U.S. dollar (GBP/USD) currency pair has ended a run of five consecutive losses, the GBP/JPY is up after falling six days in a row, while the euro/British pound (EUR/GBP) is back below 0.90 after a sharp four-day rally.
Falling in the awkward post-US, pre-Asian session, the Reserve Bank of New Zealand will deliver its quarterly monetary policy statement in just a few hours (21:00 GMT). While the release is functionally equivalent to the Fed’s “live” quarterly meetings when it delivers updated assessments on the economy, the primary difference is that the RBNZ is nowhere near making any meaningful changes to policy; instead, traders will try to “read between the lines” for more insight on how the central bank is leaning for the future.
As the Brexit-hit pound continues to get a hammering, the FTSE is still going strong despite an otherwise lackluster day in the stock markets. The GBP/USD broke below the 1.29 handle to reach its lowest level since last August, while the EUR/GBP hit a fresh high for the year at 0.90 and the GBP/JPY dropped below the May low of 143.20, as investors fretted over the prospects of a no-deal Brexit. The weakness of the pound may be the reason why the FTSE is trading higher.
It’s been a relatively quiet day for many major currencies today, with a dollop of weakness in the Canadian dollar and a touch of strength in the Australian dollar after last night’s RBA meeting the most notable moves so far. While British pound/U.S. dollar (GBP/USD) currency pair has been essentially flat on the day, there are a couple of major events coming up on Friday that could shake the pair from its top.