Good morning

High Low High Low
EUR/USD 1.0617 1.0579 USD/ZAR 12.3950 12.3440
GBP/USD 1.4771 1.4743 GBP/ZAR 18.30 18.20
EUR/GBP 0.7196 0.7169 USD/RUB 61.75 60.75
USD/JPY 121.41 121.25 USD/NGN 199.9 199.1
GBP/CHF 1.4860 1.4812 S&P 500 2,076 2,071
USD/ILS 4.0277 4.0003 Oil (Brent) 53.73 52.99

UK BUDGET and FOMC. Markets could not have wished for a better day to find volatility.

The USD was almost unchanged against the EUR/GBP/JPY in quiet Asian trading with investors staying on sidelines ahead of the outcome of the much anticipated UK Budget followed late afternoon by the U.S. Federal Open Market Committee (FOMC) meeting later in the day. The FED is expected to remove the word “patient” from its statement on the timing of a possible rise in interest rates, opening the door to a rate increase as early as May (PARITYFX) or June onwards (Economists). HOWEVER caution is also called for. Recent somewhat disappointing US data (excl NFP at +295k), lower oil prices (again) and of course the incredible rally in the USD might lead the FED to hold off changing their rhetoric and continue with “patience”. If the latter does happen you will see a monumental sell off in the USD as the markets expectation for an imminent rate hike is quashed….like the recent Israeli elections, the result is just too close to call. I would like to think the US economic engine is rolling over nicely at the FED’s expectation. Then again the clever people at the FED might have other ideas and think the USD rally, lower oil, rising employment is good enough for now and there is no need to hike rates just yet. The conference starts at 6pm London time. The lingering uncertainty about the economy data, low inflation and wage data and the strong USD will be behind their decision later. Pres. Yellen will use the press conference to express this by signalling that dropping patience by no means points to a rate hike at one specific FOMC meeting.  In other words the gap between the April and June FOMC meetings might signal that a hike IS possible outside an FOMC meeting.

Then there is the small matter of the UK Budget.  All eyes will be on George Osborne as he delivers his sixth budget, probably his most important as the country goes to the polls in May. The Chancellor has promised a budget with “no gimmicks” but it is expected to contain a few pre-election presents (has to be done!!). To aid the Chancellor, at 9.30am London time the BOE publishes its rate vote/Unemployment and BOE minutes. No doubt these minutes will be crucial in giving us a hint whether the BOE is also (like the US) considering raising interest rates later in the year. I have no doubt the minutes and data will be a welcome boost to the Chancellor in convincing the electorate to give the Conservatives another 5 years having turned around the economy and increased jobs/wages. After all it was a rise in wages that the BOE has always hinted at being the spark that ignites future rate rises. Economists are looking for a drop in unemployment to 5.60%, which if confirmed will be the lowest rate since June 2008 and the start of the financial crisis. Not bad going by the Conservatives. With wage growth likely to hit +2.1% (4x inflation), the Gov. might signal things are looking ripe for a rate hike (but NOT before the US of course).  Overall the GBPUSD has fallen in recent days breaking comfortably through the 1.50 barrier. I am afraid to say, while pullbacks are possible, my sentiments remain the same and I see a continued fall (weakness) in the GBP against the USD. Against the EUR, the GBP has fallen back to 0.7190 from a high of 0.7019….I think we could very well have seen the high for now. Consolidation a range bound. If of course the USD does mount another challenge on PARITY it all depends how fast the GBP falls with the EUR (against the USD). As we have repeatedly said, the UK economy remains well ahead of the EU and therefore i see the GBP re-affirming its strength against the EUR

Israel’s Likud party (Netanyahu) has pulled the rabbit out the bag and claimed victory in yesterday’s elections. No doubt the swing to the right was based on Israel’s security and ability to survive rather than socioeconomic factors. The ILS has traded sideways at just above 4.00 as I write this. It is now interesting to see who he brings in to form the 60+ seats he needs in the Knesset.


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