Good morning

High Low High Low
EUR/USD 1.1161 1.1127 USD/ZAR 16.0689 15.8697
GBP/USD 1.4548 1.4471 GBP/ZAR 23.32 22.95
EUR/GBP 0.7710 0.7660 USD/RUB 79.64 75.87
GBP/EUR 1.3055 1.2970 USD/ILS 3.9083 3.8583
USD/JPY 117.53 116.78 S&P 500 1890 1877
GBP/CHF 1.4451 1.4343 Oil (Brent) 34.92 33.98
GBP/AUD 2.0533 2.0351 Gold 1174.0 1164.0

The big news was no doubt the weaker than expected Non-Farm payroll on Friday last. Only 151k jobs were created vs the 190k expected. As you are well aware, FED President Yellen made a point of saying in December that further rate hikes in the US were going to be DATA DEPENDENT. Ouch!!! That data certainly was a low blow and adds fuel to my fire that the FED will in all probability (though what they do and say are 2 different things) delay hiking in March and look further down the curve. Some good news was the unemployment rate which did manage to fall to 4.9% …. however this was not enough the save the USD’s blushes.

Reading some comments from the major banks, they now appear to be talking the same rhetoric as me, and looking for rate hikes in June and December as opposed to March, June, September, December. I have been saying over the past few weeks the combination of a weaker global economy and weaker US data is forcing the FED to delay and slow down the rate hikes. They can ill afford to stick to their game plan and risk the economy falling back into recession after the sterling work they have accomplished over the last 5 years. While some commentators still argue for a another rate hike in March, Pres Yellen (I hope) will act as she has preached and delay the hike to June so that they (the FED) have more data (hopefully better) and the global economy has bottomed (wishful thinking). Its all to play for.

China’s FX reserves dropped $100bn to $3.23tn coming on the back of a $108bn fall. This fall, one can argue, was the PBoC attempt to stabilise the CNY in the “open” market. As I have previously argued, I think the PBoC will be happy to let the CNY devalue further and use their reserve arsenal to protect the CNY from attacks by the market. In other words, controlled devaluation. No doubt you are unlikely to hear any negative rhetoric from the likes of the FED, ECB, BoE, and BoJ against such a policy.

Last week we also saw the BoE announce their rate decision. What stood out of course was the vote. From 8-1 (against) members of the MPC voted 9-0 to keep rates unchanged. While the GBP rallied on the news (against the grain) I think it is fair to say traders sold the rumour and bought the fact. UK rates are not going anywhere and a report in Sky News actually spoke of a CUT in UK rates to help stimulate the economy. This story first appeared a few months ago when BoE members noted rates could ALSO be cut if necessary. The lack of inflation and wage growth continues to blight the UK economy and the soon to be announced EU referendum all adding to the pressure on the GBP and the BoE. Therefore as things stand, you can expect rates to stay at 0.50% for the next couple quarters with Q4 the time to re think that hike pattern. What I imagine is once it starts (rate hikes) they are likely to go up faster than had the Chancellor been able to raise them in Q1. Tighten your belts…As for the GBP, its torn between a weaker USD (GBP appreciation) and weaker UK economy/EU Referendum/Rate hike delay (GBP Depreciation).


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