Could Hammond’s First Autumn Budget be His Last?

new door

The UK Chancellor of the Exchequer Hammond is set to deliver his first Autumn budget tomorrow, and it could be his last.  The UK government is fragile.  Infighting is notorious.  It appears the hardline Brexit camp does not trust Hammond.  A cabinet reshuffle is widely rumored, and Hammond seems vulnerable. Prime Minister May, who also initially was in the Remain Camp, is said to regard Hammond suspiciously.  

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Dollar Marks Time

new time

  • The US dollar has largely been confined to yesterday’s trading ranges against the major currencies amid light news
  • We suspect talk of the end of Merkel’s tenure is greatly exaggerated
  • The Turkish central bank took limited steps to support the lira as it makes new record lows
  • Korea reported trade data for the first 20 days of November; Hungary central bank is expected to keep policy steady Continue reading

German Politics: What’s Next?

new germany

Talks to forge a new coalition government in Germany passed the self-imposed deadline at the end last week, and the markets paid little attention.  The euro finished last week a little below $1.18, up to a little over 1% on the week. Talks continued over the weekend and then, late yesterday, the pro-business Free Democrats, with a dramatic flair, walked out of the negotiations.  The CDU/CSU and Greens were surprised as the FDP appeared to get much of what it had wanted.  

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Drivers for the Week Ahead

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  • The contours of the investment climate are unlikely to change based on this week’s economic data from the US, Japan, or Europe
  • The attempt to forge a four-party coalition in Germany collapsed Sunday
  • US tax reform made important progress last week
  • The Federal Reserve and the ECB release the minutes/record of their most recent meetings
  • Political drama may be most profound in the UK Continue reading

German Political Impasse Roils Euro…Briefly

new finish line

News that the  attempt to forge a four-party coalition in Germany collapsed Sunday saw the euro marked down in early Asian activity.   The euro fell to nearly $1.1720 in the immediate response to the news, stabilized before turning higher in early European turnover.  It quickly recovered and poked through $1.1800.  The pre-weekend high was seen near $1.1820.

It is not clear where Germany goes from here.  However, the important takeaway is that investors do not see this as a systemic issue, but a local one.  Investors quickly looked past Catalonia’s secessionist push on similar grounds.  Likewise, state developments in the US rarely move the markets, even large states, like New York and California.  Nevertheless, we suspect the euro’s recovery has run its course, and the intra-day technicals warn of the risk of a new setback to the lows. 

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EM Preview for the Week Ahead

blog-icons-empreview emerging markets previewEM FX ended the week firm, and capped off a good week overall.  Best performers last week for ZAR and KRW, while the worst were TRY and IDR.  Until we get higher US rates, the dollar may remain under modest pressure.  This would help EM maintain some traction, though we remain cautious.  Continue reading

Will the Light News Week Facilitate Range Trading?

Blog icons - FX Outlook dollar

Last week, we warned that dollar’s downside correction to its two-month advance was not over.  It slipped further against the euro, yen, and sterling, while it strengthened against the dollar-bloc currencies.  The outlook remains mixed for the week ahead, making it difficult to discuss the dollar in general.   

The Dollar Index is heavily weighted toward the complex of European currencies.  Two of the US main trading partners, China and Mexico, are not even included.  Yet it frequently is used as a broad gauge of the greenback.  The recent pullback saw it push through the 38.2% retracement of the rally (93.55) that began from the year’s low set on September 8 (~91.00).  

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