Reuters: The pound Sterling rose on Friday nearing its highest in almost three months, lifted in part by a broad-based retreat in the dollar, but also by a rise in UK bond yields after this week’s budget update included a forecast of higher government debt issuance.
British Pound Sterling rose
Also bullish for sterling was a reading of consumer confidence on Friday that showed people in Britain turned more optimistic about the outlook for the economy and their personal finances this month, although sentiment is a long off where it was before COVID struck in early 2019. Sterling rose to a high of $1.2575 on Thursday, taking advantage of lower trading volumes because of the U.S. Thanksgiving holiday to make inroads against the dollar. By Friday, the pound traded around $1.257, up 0.28%. Against the euro , sterling was up 0.2% at 86.84 pence.
Currency markets are caught up in shifting expectations for the timing of the first central bank rate cuts. Money markets show traders believe the Fed could move as soon as May, while the Bank of England is expected to cut later and by less. This, in theory, should support sterling, but if the concern among investors is over the economic outlook, that complicates the picture, Trade Nation senior market analyst David Morrison said. “It’s very difficult for the Bank of England, in particular, because the economic data hasn’t been great – a bit like the euro zone – growth is pretty tepid and yet inflation remains way above target,” he said. “I just don’t see us escaping a recession here. That’s in my bones.”
ALSO READ: SASSA fraud something to report this holiday
On Wednesday, Finance Minister Jeremy Hunt unveiled a series of tax boosts to support the UK economy, but estimates of both growth and inflation were more pessimistic than previously forecast. Headline inflation subsided to 4.6% in October. A year ago it was at 11%, but it is still double the BoE’s target of 2% and well above consumer inflation rates in either the United States or the euro zone. The Office for Budget Responsibility, the UK’s budget watchdog, forecast inflation to reach 2.8% in 2024, compared with a forecast of 0.9% in March.
Separately, the Debt Management Office cut its gilt issuance remit for 2023/24 to 237.3 billion pounds ($295.7 billion) from 237.8 billion pounds previously. The 500 million-pound cut was smaller than any primary dealer predicted in a Reuters poll, which has sent 10-year gilt yields up 20 basis points this week to their highest since Nov 14. “If we start seeing some bad GDP numbers and if we do start to see unemployment going up, given everything else, you’ve then got the Bank of England maybe having to cut rates,” Morrison said.
Data from market research firm GfK on Friday showed UK consumer confidence index was stronger than anticipated in November, increasing to -24 from October’s three-month low of -30. November’s reading was above the -28 forecast in a Reuters poll of economists, and follows a sharp fall the month before. “Recent ups and downs in confidence have underlined the nation’s topsy-turvy economic mood as encouraging news about falling inflation and wage growth is offset by high personal taxation, alongside costly fuel and energy bills,” Joe Staton, GfK’s client strategy director, said.
ALSO READ: Fuel price UPDATE: Petrol, diesel news still GOOD for December 2023
U.S. Dollar
Reuters: The dollar kicked off the last week of November on the back foot while sterling held near an over two-month high on an easing economic gloom in the UK, as traders eyed fresh economic cues in the week ahead to determine the future path of policy rates. A postponed OPEC+ meeting, data from the Federal Reserve’s favoured measure of inflation alongside inflation readings in the euro zone and Australia fill this week’s calendar, which will also see a rate decision from the Reserve Bank of New Zealand and Chinese PMI data.
Sterling was last 0.06% lower at $1.2598, but hovered near Friday’s over two-month peak of $1.2615, on data last week showing that British companies unexpectedly reported a marginal return to growth in November after three months of contraction. “That indicates the resilience of the UK economy despite the very aggressive monetary policy tightening from the Bank of England,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “But we still expect the UK economy to weaken and experience a short-lived recession.”
The pound was on track for a roughly 3.7% gain for the month, its largest monthly gain in a year, aided by a falling U.S. dollar. The Australian dollar likewise stood near a roughly three-month high and last bought $0.6578, ahead of domestic inflation data on Wednesday. In the broader currency market, the U.S. dollar wobbled near its recent two-month trough against a basket of six peers, with traders, returning from the Thanksgiving lull late last week, eyeing U.S. core PCE prices due this week for clues on the Fed’s next steps.
ALSO READ: SASSA: Which December grant pays first?
The dollar index, which was last 0.08% higher at 103.51, was headed for a monthly loss of 3%, its worst performance in a year. “We anticipate that the turnaround in the U.S. dollar will play out over a longer period,” said Jane Foley, senior FX strategist at Rabobank. “Insofar as CPI inflation rates across much of the G10 are still above central bank targets, there is a strong incentive for policymakers to support the ‘higher for longer’ theme since higher market rates will help in the battle against inflation. “Investors, however, are looking through this policy and appear increasingly pre-occupied about betting on the timing and pace of rate cuts next year.”
Market pricing shows a roughly 23% chance that the Fed may begin easing monetary policy as early as next March, according to the CME FedWatch tool. The weakening greenback provided some respite for the Japanese yen, which sat on the stronger side of 150 per dollar and last stood at 149.52 per dollar. Elsewhere, the euro slipped 0.03% to $1.0930, but did not stray far from an over three-month peak of $1.09655 hit last week. A survey out last week showed the downturn in euro zone business activity eased in November but remained broadbased, suggesting the bloc’s economy will contract again this quarter as consumers continue to rein in spending.
The New Zealand dollar eased 0.1% to $0.6076, but was likewise hovering near Friday’s more than three-month high of $0.6096. In the Middle East, Hamas freed 17 hostages in Gaza, including a 4-year-old American girl, while Israel released 39 Palestinian prisoners on Sunday, the third day of their truce. “I think the issues in the Middle East have definitely become more of a background risk,” said CBA’s Kong. “The temporary truce may have supported risk sentiment and weighed on the U.S. dollar at the margin, but I don’t think the conflict will become a bigger influence on FX markets anytime soon, unless we see a major escalation.”
ALSO READ: Who is the richest person in the world today? Top 10 list – 27 November 2023
South African Rand
Reuters: The South African rand was stronger in early trade on Thursday ahead of a key interest rate decision by the central bank amid high inflation. At 0607 GMT, the rand traded at 18.7850 against the dollar, over 0.6% stronger than its previous close. The dollar last traded around 0.3% weaker against a basket of global currencies. Headline consumer inflation rose to 5.9% year-on-year in October from 5.4% in September, data from Statistics South Africa showed on Wednesday, nearing the top of the central bank’s target range of 3% to 6%.
Investors focus on the South African Reserve Bank’s main interest rate decision and its Monetary Policy Committee’s tone on the future rate path on Thursday. Analysts polled by Reuters predicted interest rate to be maintained at 8.25%, its highest since 2009. “Let’s see the tone of the statement, the forecasts and vote split. Presumably, SARB will only pivot after the Fed,” said Rand Merchant Bank analysts in a morning briefing. South Africa’s benchmark 2030 government bond ZAR2030= was flat in early deals to 10.140%.
ALSO READ: Newspaper front pages from around the world, 27 November 2023
Global Markets
Reuters: Asian shares slipped on Monday ahead of potentially market-moving inflation data from the United States and Europe later in the week, and a meeting of oil producers that could stop, or extend, the recent slide in prices. One mover was gold, which climbed to $2,009 an ounce and briefly hit a six-month top of $2,017.82. The approach of month end could also cause some caution given the hefty gains investors are sitting on. Japan’s Nikkei eased 0.3%, but it still up 8.6% so far in November. MSCI’s broadest index of Asia-Pacific shares outside Japan also dipped 0.3%, giving it a monthly gain of 6.4%. Chinese blue chips lost another 1.1%, and have missed out on all the global cheer with the market down 2% in November so far.
China’s central banks announced it would encourage financial institutions to support private companies, but was short on detail. EUROSTOXX 50 futures eased 0.2%, while FTSE futures fell 0.1%. S&P 500 futures eased 0.2%, and Nasdaq futures lost 0.4%. The S&P 500 cash index has rallied for four weeks straight and up 8.7% on the month so far, which would be its best performance since mid-2022. The Federal Reserve’s favoured measure of inflation is due on Thursday and is expected to slow to its lowest since mid-2021, reinforcing market wagers that the next move in rates will be down.
Fed Chair Jerome Powell will have a chance to push back against the doves at a Fireside Chat on Friday, and there are at least seven other Fed speakers on the docket this week. “A view we hold strongly is that central banks are unlikely to deliver easing in the first half of 2024 absent a threat to the expansion or financial stability,” agues Bruce Kasman, head of global economics at JPMorgan. “Indeed, this message of patience is likely to be notable in upcoming DM policy communications in response to recent financial market developments.”
ALSO READ: Four days of 11-Hour daily power outages to affect these Tshwane areas
European Central Bank President Christine Lagarde has also sounded in no hurry to ease and will have another opportunity to ram home the message at the EU parliament later on Monday. Data on EU consumer prices for November is due Thursday and expected to show a cooling in both the headline and core rates, which would support market pricing for cuts. Markets priced in 80 basis points of U.S. easing next year, and around 82 basis points for the ECB. The chance of an easing in borrowing costs has generated a big rally in bonds, with yields on 10-year Treasuries down 36 basis points so far this month at 4.50%.
That in turn has been a drag on the dollar which has lost 3% on a basket of major counterparts this month. The euro was up at $1.0940 on Monday, not far from its recent four-month high of $1.0965, while the dollar softened to 149.23 yen. A run of firmer official fixes for the Chinese yuan has also weighed on the dollar against Asian currencies and the Australian dollar. The oil market faces a tense few days ahead of a meeting of OPEC+ on Nov. 30, a meting that had originally been slated for Sunday but was postponed as producers struggled to find a unanimous position.
Reports suggest African oil producers are seeking higher caps for 2024, while Saudi Arabia may extend its additional 1 million bpd voluntary production cut, which is due to expire at the end of December. “Saudi Arabia and OPEC+ faces a challenge in convincing markets that it can help keep oil markets tight in 2024,” wrote commodity analysts at CBA in a note. “OPEC+ will have to show significant supply discipline, or at least jawbone such ability, to alleviate market worries of a deep surplus in oil markets next year.” The uncertainty erased early gains and Brent edged down 31 cents to $80.27 a barrel, while U.S. crude lost 31 cents to $75.23 per barrel.
Published by the Mercury Team on 27 November 2023
For more news on global and local market performance, follow our business and finance page.