|USD/NGN yesterday’s close||393|
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Now Now, let’s not get too excited. Yes CPI has gone up to 0.60% (yesterday) and the GBPUSD rallied on the back of it. Under normal circumstances traders would be doing high 5’s with the BoE that a rate HIKE is coming. Unfortunately is this instance it was probably a low 5 as BREXIT (as predicted and mentioned repeatedly by ParityFX ahead of the referendum) has forced up prices (oil, fuel, clothing) as retailers have had to pass on the higher cost of manufacturing to the consumer. Once again let me say a big thank you to all those who voted leave…you are now poorer. But it will not stop there, this recent 24 hour rally in the GBP has already lost steam and we are teetering with 1.30 again. Basically as you know the BoE have been looking to hike rates (pre 23/06) and were looking for CPI to rise giving them firepower to raise rates. What they never counted on (including me) was 17.4 mio people voting leave. All the hard work that the Chancellor and BoE have put in since 2008 simply went up in smoke. Already we have seen one UK rate cut and there is further chatter that a further rate cut is needed to stimulate the economy. I would expect the Governor to hold off cutting until such time that the BoE have a better idea on how the UK economy is fairing post Brexit. In other words waiting until at least Q2 and Q3 data is at hand before committing (Novemberi’sh). In-between now and then rest assured the GBP will in all likelihood take another battering in the FX markets.
Tonight the FOMC publish their minutes from their July meeting and it will be very interesting to hear the rhetoric from President Yellen given that many commentators are calling for a rate hike as early as September. While recent NFP would suggest that the US economy is growing nicely the scope to raise US rates is warranted, it is the global economy that must be a serious worry for the FED. You see China is still showing signs of economic weakness, Canada cannot agree with the EU, the UK has voted Brexit, and the EU is like a fish out of water. While in an ideal world the FED can act alone for the benefit of the US economy, that is certainly not the case now and any further rates hikes in the US could hurt the economies they trade with thus slowing the US economy as a result. Of course this is something Yellen and the FED members can ill afford or want considering the events of 2008. So one has to ask, would another 0.25% rate hike really hurt that much? The simple answer is probably no, but then again psychologically it could be very different in that the flow of capital flows more towards the USD and USA rather than say China, the EU or the UK. I hope you get what I am trying to convey. It is a real gamble notwithstanding the “little” event in November when a new US President comes to power. Considering the 2 incumbents you HAVE to think the best option (and only option for that matter) is to vote for Ms. Clinton. But after the 23rd June fiasco I have realised the people are strange sometimes and vote on the back of lies and deceit. Unfortunately once the dust has settled it’s too late to reverse your “x”. Best Americans think long and hard what kind of America they want on the 9th November.
All this has led to the USD taking a bit of a bath over the past 24 hours as you can see the highs in the EURUSD and GBPUSD. Oil has managed to climb a USD or so but I’m not getting too excited. What do I think will happen now, well A LOT DEPENDS on the FED minutes tonight as an indication on what they are planning (or not) re US rates. This will then have a knock on effect on the USD, stocks, and money markets. In other words watch the news tonight.
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