Market Brief: GBP/USD rollercoaster overnight

19 Jan 2018

James Dazeley

Dealing team

GBP/USD continued its recent move higher last night, hitting a high of 1.3942. 

Today's data release
  Key levels
08:15 Weidmann, Bundesbank President speaks   Support Resistance
13:30 US initial jobless claims + housing data GBP/ USD 1.3657 1.4013
13:30 Philadelphia Fed manufacturing survey GBP/ EUR 1.1205 1.1508
14:30 ECB's Coeure speaks      

Market overview

GBP/USD continued its recent move higher last night, hitting a high of 1.3942. The pound was boosted by comments from Bank of England policymaker Michael Saunders that more rate hikes will be needed over time and that wage growth may pick up to 3% this year. The pound also seems to be benefitting from hopes of softer Brexit. GBP/USD has since given back most of its gains and we will have to wait and see how it trades in the coming days.
 
Data-wise yesterday CPI from the Eurozone came out as expected at 1.4%, whilst Core CPI was also unrevised at 0.9%, as expected. In the US, industrial production growth was stronger than expectations, showing month-on-month growth of 0.9% compared to expectations of 0.4% growth.
 
Yesterday we also had the Fed’s Beige Book which painted a relatively rosy picture of the US economy saying it is growing at a modest-to-moderate pace and that wages continue to move higher. With this growth and despite inflation below its 2% target, Fed policymakers are still expecting to raise interest rates three times this year. Turning to US politics , efforts to progress another stop-gap spending bill to avoid a government shutdown from tomorrow night (19th Jan) look to have stumbled. The latest round of opposition looks to come from Republican defence hawks in the House who are saying that the last short-term spending plan did not devote enough money to the military and hence they object to another one that does the same. Talks continue today, butthere is little time left for a solution to be found.
 
Meanwhile in Canada the Bank of Canada raised interest rates by 0.25% to 1.25% as expected, but the Canadian dollar initially sold off as the Bank said it was in no rush to return borrowing costs to more normal levels as uncertainty around NAFTA negotiations is “weighing increasingly” on Canada’s economic outlook. Finally, data from China this morning confirmed that the Chinese economy grew 6.9% over 2017, which would be the first acceleration in the annual pace of growth since 2010.
 
Finally, a couple of ECB officials have expressed concern over the recent rise of the euro. Vítor Constâncio, European Central Bank vice-president, said “I am concerned about sudden movements which don’t reflect changes in fundamentals” whilst Ewald Nowotny, another ECB member, said the strengthing euro was “not helpful”. The euro was a touch lower for the day. The ECB meets next week and markets will be watching for any similar comments from President Draghi on the Euro.

The day ahead

Today is a day for European speakers and American data. At 0815 we have a speech from Jens Weidmann, the Bundesbank president whilst at 1430 Benoît Cœuré, a member of the European Central Bank’s Executive Board, speaks. In between those we get a number of US data points at 1330 with Initial Jobless Claims (250,000 expected), the Philadelphia Fed Manufacturing Survey, and a range of housing data. We will also be watching what GBP/USD does after yesterday’s spike.
 

Thought of the day

Bitcoin (BTC) kicked off trading yesterday at $11,348.02 (£8,229.58), before a steep sell-off just after midnight saw prices fall $1,000 (£725.20) in three hours, according to CoinDesk. At around 2.57pm Bitcoin hit $9,650.34 (£6,992.83), marking the lowest BTC price in nearly two months. What caused this drop? There is no clear answer as to why the price fell so much. Analysts argue that the plunge was triggered by a ‘huge’ sell-off of tokens. Others believe it could be due to unease in the investor community over talks of a cryptocurrency trading ban in South Korea and further possible crackdowns on trading and mining in China. Speaking of unexpected moves, GBPUSD broke 2 technical levels late last night as stop loss orders were triggered through 1.3836 and 1.3885, hitting a high of 1.3942. There was no real fundamental reason for a move higher in GBPUSD and we have now seen a pullback to the low 1.38s. This drop back may have been aided by news that Apple plans to repatriate hundreds of billions of dollars which will result in 38bn USD in taxes. In any case, whatever caused the move, clients and investors who had live orders on to buy USD last night must certainly be pleased this morning. To make the most of this move, call the Investec Dealing team to place your orders.

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