|USD/NGN yesterday’s close||398|
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Let’s start with some headlines:
Oil prices fell over 1 percent on Tuesday, with Goldman Sachs warning that August’s price rally had been overdone and that a proposed oil production freeze at current near-record levels would not help rein in an oversupplied market.
South Africa’s rand continued its retreat against a strengthening dollar on Monday, as rekindled expectations of a near-term rate rise kept investors cautious.
Nigeria’s naira closed firmer on the interbank market on Monday after the central bank sold dollars to some commercial lenders towards the end of a session that featured no trades in the first four hours, traders said. Nigerian President Muhammadu Buhari will ask parliament for extra powers for one year allowing him to take “emergency” decisions to revive the flagging economy, a government source said on Monday. Hotel and gaming group Sun International has become the latest South African business to pull out of Nigeria because of weak economic growth and clashes with regulators and shareholders in the West African country.
The USD continues to retreat today as speculation gathers steam that this Friday’s talk by Pres. Yellen at Jackson Hole will kinda confirm that there is indeed an increasing likelihood that the FED could delay hiking rates in September. I wrote about this subject in detail yesterday and while I think the FED should delay hiking rates, their actions will be vastly different (in how they analyze the US economy and the fallout from a further rate hike). We know there are FED members who want to delay a rate hike, but I think Pres. Yellen is keen to hike rates and get a move on with the US economy. She is determined to hike rates because she feels the US economy will be better off with higher rates. That way if they do encounter a rough patch they will have scope to cut rates should there be a need. Granted another 0.25% hike will be neither here nor there, but it is the global economy that you need to consider strongly. The UK has shed 2% of GDP since Brexit, the EU is well the EU and nothing changes (though we did see stronger French and German PMI numbers this morning which is encouraging) and finally China is on her knees (if you can call GDP at 6.80% on her knees). So you see when the FED decide on whether to hike or not in September best they read my comments above and know it is too soon.
The GBP has had a super 48 hours rallying above 1.32 at one point this morning. This is NOT a GBP thing it’s a USD thing. The EURUSD continues to trade over 1.13 handle all because of the will they won’t they hike rates in September. I wrote yesterday that I think there is good reason for the GBPUSD to rally potentially as high as 1.40 given that things have not necessarily been “that bad”. What we have to look at are the BoE gilt issuance and the value of the GBP makes a big difference not only to the value of the bond but also the repayments. With Inflation at 0.60% and prices rising heck, what is stopping inflation hitting 1% by year end and potentially a UK RATE HIKE!!! Anything is possible and my gut tells me something is brewing in GBP land. A delay in September by the FED to hike rates could be the strike that sends the GBP back to more “respectable” levels. Anyway that’s my opinion
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