Market Info

US stocks and dollar lower as Trump’s chief economic advisor quits. EUR up as Italian parties trade insults. GBP mixed ahead of EU response to Brexit speech.

07/03/2018 | OzForex

Wednesday 7 March

Great British Pound

After Monday’s table-topping performance, Tuesday was a much poorer day for the GBP which fell against four of the five other currencies we follow closely here. The biggest fall (-0.7%) came against the NZD but losses elsewhere came against the EUR, CAD, AUD and NZD. The low point for GBP/USD was early in the London morning at 1.3820 and the pair rallied exactly one cent when the USD came under pressure after the news North Korean was offering to ‘de-nuclearise’. By the end of the day, however, the GBP had fallen more than a quarter of a cent from its high, leaving it back on a 1.38 big figure which is where it has traded throughout the overnight session in Asia.

The Guardian newspaper has the full 8-page text of a leaked document from the General Secretariat of the Council of the European Union. This was issued to representative of all 27 EU States and covers the “Lines To Take” on Theresa May’s Brexit speech last Friday. It said the prime minister had promised clarity on Britain’s hopes for a future trading relationship, but described the model she proposed as unworkable and “double cherry-picking”. It also claimed there had been “zero progress” when it came to ideas for customs cooperation. The paper concluded that, “Like with PM May’s previous speeches, she addressed more her domestic audience, trying to bridge the gaps between the two poles of the debate on Brexit in the UK. While the speech was long on aspirations, it was short on workable solutions that would respect the EU27 principles.”

The last in a series of Brexit speeches by Cabinet Ministers is due to be made today by the Chancellor Philip Hammond. According to the BBC, the Chancellor will refer to past attempts at forging a free trade agreement between the US and Europe. He will argue that in 2014 the EU itself pursued ambitious financial services co-operation in its proposals for TTIP [the now aborted Trans-Atlantic Trade and Investment Partnership], which it described as a partnership that would be, 'more than a traditional free trade agreement. Mr. Hammond’s argument, the BBC claims, is that if the EU was willing to include financial services in TTIP, it should be equally willing to include them in a Brexit deal for the UK. It’s a nice try, but goes against everything we have thus far heard from the EU over the last few months.

US Dollar (USD)

GBP/USD expected range: 1.3820 – 1.3920

Up until the end of last week, the USD had a fairly close inverse relationship with the stock market: Equities up, dollar down and vice-versa. This broke down on Friday when both the stock market and the USD fell as a result of threatened retaliation to President Trump’s proposed steel tariffs. A huge rally in the stock market on Monday saw the USD trade essentially sideways but for much of Tuesday, stocks and the USD both headed south again as the DJIA fell 300 points in the New York morning. Overnight in Asia, the same pattern has been repeated and futures markets are indicating another 400 points off the DJIA with the USD index back down at a two-week low of 89.00.

The trigger for the simultaneous drop in stocks and the dollar was a report that former Goldman Sachs COO Gary Cohn would leave his White House job if Trump decided to go forward with tariffs on imported steel and aluminum. This departure was confirmed late on Tuesday evening. In a statement issued by the White House, he said that it had been “an honor to serve my country and enact pro-growth economic policies to benefit the American people, in particular the passage of historic tax reform.” In his reply, President Trump said: “Gary has been my chief economic adviser and did a superb job in driving our agenda, helping to deliver historic tax cuts and reforms and unleashing the American economy once again. He is a rare talent, and I thank him for his dedicated service to the American people.”

Keeping up with all the twists and turns of global foreign exchange markets is an exhausting business at the moment, though our clients around the world can’t say they weren’t warned about this extreme volatility. We wrote here 24 hours ago that, “All eyes elsewhere will be on the POTUS’ Twitter feed; a single tweet from Mr. Trump could easily move stocks and the US Dollar by one per cent in a matter of moments.” As we’ve said many times before, having orders already in place to profit from or mitigate the impacts of this volatility is a key component of a corporate risk management strategy. It’s a job which is not easy right now.