Another day another election and this time it’s the UK’s turn to hit the voting stations.? Unlike our election the outcome of the UK vote is all but certain to see Labour take control after 14 years of the Conservative’s holding court, and the Pound holding up well on the prospects of a closer alignment with the EU.
These are the mid rates at 6:05 today:
Brent Crude = $86.87 per barrel
- Focus today will be on the UK but the Rand was very happy that yesterday’s focus was on the US where a string of soft data releases knocked the Dollar backwards while allowing us to hit R18.30 as the day’s best level against the greenback.? The US is closed for their 4th of July holiday today and so exaggerated moves in the currency market should be hard to come by, but the Rand is just glad that a weaker Dollar is outweighing any local political concerns.? ?
- The week’s main data release is still ahead of us, and Friday afternoon’s US jobs report will shape how the market views the FED’s next policy move, but yesterday went a long way towards prepping us for a Dollar negative outcome.? It was a busy day with a raft of second tier data releases and from the Rand’s perspective we were happy to see weakness across the board with the private sector ADP jobs report coming in lower than expected, initial jobless claims coming in higher than expected, the US ISM services report coming in much lower than expected and US factory orders also delivering a big miss to the downside.? If the FED is looking for evidence of a cooling US economy then yesterday was exhibit A, and the Dollar took a direct hit as a result.? ?
- A week ago the chances of a FED interest rate cut in September stood at 54%, by yesterday morning that had increased to 68% thanks to a well behaved US inflation report last Friday but once the above mentioned data misses started coming in September’s chances then jumped to 74%.? Jerome Powell and his FED members have all said they need so see inflation move sustainably down towards their 2% target, and if softening economic data is a precursor to lower CPI then the market’s reaction yesterday tells us a lot about what the FED might be thinking.? This Friday’s jobs report followed by next Thursday’s US CPI report will go a long way towards determining whether September is indeed a live meeting, but right now the Rand is enjoying the noticeable shift in sentiment.?
- The following is from Reuters and, if correct, suggest a markedly weaker Dollar next year:? Wednesday’s data overall depicted a US economy that is slowing down, undermining the Dollar. “The economic data surprises in the US are now undershooting expectations relative to other major economies, which has generally coincided with periods of Dollar weakness,” wrote Jonas Goltermann, deputy chief markets economist, at Capital Economics in a note. “Taken together, we think the next major move in the greenback will be lower. We forecast the (Dollar Index) to end this year around 106, near its current level, before falling to 98 by the end of 2025.”
- It’s a US public holiday today along with the UK’s general election but trading desks will have one eye on Japan as the Yen has fallen to a fresh 38 year low against the Dollar, now at 161.96 which is worse than the level they targeted in late March, early April with $61bn worth of Dollar selling.? Those moves were carried out in periods of thin liquidity, just like today, although analysts have also pointed out that with the gap in yields between Japanese and US bonds still very wide any intervention will deliver only short lived results, so maybe the Japanese authorities have resigned themselves to Yen weakness until the FED starts cutting rates.?
- No local market data today.?
- Possible USD mid rate trading ranges in the Rand today are R18.45 and R18.75
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