Sterling pares early gains as BoE meeting looms – Reuters

By Abhinav Ramnarayan | LONDON

Sterling fell late on Tuesday after surging on higher-than-expected inflation numbers and softer government rhetoric on Britain’s planned departure from the European Union.

Focus was shifting to U.S. Federal Reserve and Bank of England policy statements over the next two days but traders said the pound would continue to struggle to break through resistance above $1.27 which has held for the past fortnight.

Consumer prices rose 1.2 percent last month year-on-year, the Office for National Statistics said, beating economists’ expectation for a 1.1 percent annual rise in a Reuters poll.

That pushed sterling as high as $1.2723 in morning trade but a burst of mid-afternoon selling pushed it back to $1.2680 by 1600 GMT, still up marginally on the day. It dipped a quarter of a percent to 83.96 pence per euro.

“Inflation was clearly a little bit stronger than expected, and with the Bank of England meeting later this week, it will be interesting to see to what extent they are concerned,” said Rabobank currency analyst Jane Foley, referring to the BoE monetary policy committee meeting scheduled for Thursday.

“But I think we will have to have a much more binding commitment to ‘soft Brexit’ to see sterling make that leap towards the $1.30 mark,” she said, referring to market hopes that the UK will maintain close ties with the European Union even after it leaves the bloc.

Sterling fell sharply from its June highs of $1.5018 following Britain’s vote on June 23 to leave the EU.

As a result, many economists expect prices to come under more pressure next year as the currency’s weakness feeds through to the cost of imports. Yet market pricing suggests the Bank of England will look past that bounce as a one-off effect in aid of keeping interest rates low until the end of 2018 given the economic risks of the Brexit process.

“The market had to a large extent priced for higher inflation now – but the politics and (the manner of) Brexit is the overriding factor for sterling,” Foley said.

The currency had also taken some support ahead of the data after comments from UK Chancellor Philip Hammond in favour of a staggered transition period for the country’s exit from the EU.

Hammond backed the idea on Monday of a transition period to smooth the Brexit process and said EU countries also stood to gain from a gradual British withdrawal.

“Given this optimistic sentiment regarding a smooth divorce with the EU, we expect cable to continue trading higher for a while, at least ahead of the Bank of England policy meeting on Thursday,” IronFX analyst Charalambos Pissouros said.

(Editing by Robin Pomeroy)

Pound Leads Gains Among G-10 Currencies on U.K. Inflation Boost – Bloomberg

  • Recent U.K. data has proved resilient after the Brexit vote
  • Sterling gains ‘limited’ by concerns on Brexit trigger: Mizuho

The pound strengthened the most among Group-of-10 currencies after data showed U.K.inflation accelerated to the fastest pace in more than two years.

Sterling, which has seen a gradual move higher since the flash crash on Oct. 7, is still one of the worst performers in the past six months, a period that encompasses the slide after Britain’s shock decision to leave the European Union. While the currency dropped to its lowest level in three decades after the Brexit vote, economic data have proven resilient and lent support since then.

The pound was up 0.3 percent to $1.2715 as of 12:57 p.m. in London, extending the 0.9 percent climb on Monday. It strengthened 0.5 percent to 83.44 pence per euro.

“The market is still in the process of reducing hedges” that were put on after the Brexit vote to protect against feared losses in the pound, said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. This was “in part on the basis that macro data is outperforming albeit low expectations. However, gains are limited as concerns remain over a possible no delay on Brexit. If Brexit moves to a March release then the pound will tank again.”

  • U.K. consumer price index year-on-year jumped to 1.2 percent in November, higher than economists’ estimate of 1.1 percent and the previous reading of 0.9 percent
  • Citigroup Inc.’s U.K. Economic Surprise Index has been above zero since June. A positive reading indicates data have been beating analysts forecasts
  • The pound was also supported by comments on Monday when Chancellor of the Exchequer Philip Hammond suggested that the idea of a transitional period to cushion Britain’s exit from the EU was gaining support among ministers
  • “That feeds into the momentum seen over the last month or so” when an easing in fears about a hard Brexit allowed the pound to rebound from a very undervalued level, said Lee Hardman, a London-based foreign-exchange strategist at MUFG
  • Inflation data are, however, unlikely to be a big market driver for sterling, according to currency strategists including Manuel Oliveri at Credit Agricole in London, as the Bank of England has said it would look through increased upside risks to price pressures
    • “When it comes to the GBP, we remain of the view that rallies should be sold, against both the EUR and the USD,” they wrote in a note before the data release
  • Focus will shift to unemployment, retail sales data later this week and also the very last policy decision for this year from the BOE

    Dollar steady as traders await clarity on Fed rate hike path – Reuters

    By Sam Forgione | NEW YORK

    The U.S. dollar was steady against a basket of major currencies on Tuesday on uncertainty over whether the U.S. Federal Reserve would signal a slow or fast pace of interest rate increases at the end of a closely-watched policy meeting.

    The Fed is widely expected to hike interest rates on Wednesday. It is less clear, however, if the central bank will indicate a more cautious pace of rate increases given a recent surge in Treasury yields and gains in the dollar or a faster pace on greater confidence that U.S. economic growth will accelerate.

    As of September, Fed officials’ median projection was for two rate increases next year. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

    “Understandably, the market is in a little bit of a holding pattern” ahead of the Fed’s policy statement, said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

    Franulovich said the Fed could signal a “dovish hike,” or a rate hike combined with a policy statement that alludes to recent strength in the dollar and higher U.S. yields as a potential constraint on growth, or a “hawkish hike” where the Fed raises rates and emphasizes faster growth.

    The dollar index, which measures the greenback against a basket of six major currencies, rallied nearly 4 percent between the Nov. 8 U.S. presidential election and last Friday. Benchmark 10-year Treasury yields hit 2.528 percent on Monday, their highest level in more than two years.

    Those moves have largely come about on expectations that U.S. President-elect Donald Trump will enact policies that increase spending and debt as well as spur growth and inflation.

    “There is a lot of suspicion that the Fed might be more dovish than hawkish at this point, given the very strong run-up in rates,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

    The U.S. dollar index .DXY was last down 0.06 percent at 100.970. The dollar was up 0.23 percent against the yen JPY= at 115.29 yen after hitting a 10-month high of 116.12 yen on Monday.

    The euro EUR= was last flat against the dollar at $1.0635 after briefly touching a five-day high of $1.0653.

    (Reporting by Sam Forgione; Editing by Paul Simao)

    MMM places one month ban on withdrawals – Punch

    Popular money-doubling scheme, Mavrodi Mundial Movement, has placed one month ban on all withdrawals starting from Dec. 13.

    A letter displayed on the page of participants of the scheme cited “heavy workload on system” as reason for the ban.

    This means that members of the ponzi scheme who are due to withdraw both their capital and 30 per cent return on investment will no longer be able to do so until sometime in January 2017.

    According to the letter, the ban on withdrawals is partly due to negative reports by the media on the scheme. 

    The letter reads in part; “one-month freezing of confirmed Mavros.

    “Dear members, as usual in the New Year season, the system is experiencing heavy workload. Moreover, it has to deal with the constant frenzy provoked by authorities in the mass media.

    “The things are still going well; the participants feel calm; everyone gets paid – as you can see, there haven’t been any payment delays or other problems yet – but!..it is better to avoid taking risk, Moreover, there are just three weeks left to the New Year.

    “On the basis of the above mentioned therefore, all confirmed Mavros will be frozen for a month.

    “The reason for this measure is evident. We need to prevent any problems during the New Year and then, when everything calms down, this measure will be cancelled, which we will definitely do.

    “We hope for your understanding, Administration.”

    The Securities and Exchange Commission and the Central bank of Nigeria has warned Nigerians against participating in the scheme which it described as a “Ponzi”.

    The House of Representatives had in October ordered an investigation into the operations of the scheme.

    (NAN)

    Yuan Shorts Staging a Comeback Suggest Cash Crunch Will Persist – Bloomberg

    By  Justina Lee

    • Money market to remain tight amid pressure on yuan: Scotiabank
    • Onshore yuan snaps three-day drop as dollar falls before Fed

    The yuan shorts are back.

    Once cowed by the specter of intervention, offshore yuan bears are positioning for further declines again, with implied volatility and forward points both jumping to the highest since at least March this week. While the yuan has stabilized somewhat around 6.9 per dollar this month, signs of faster capital outflows and an imminent Federal Reserve interest-rate increase are fueling speculation that depreciation will quicken again.

    These concerns are outweighing Chinese policy makers’ efforts to fend off pressure by driving up funding costs in the onshore and offshore markets. While a Fed rate rise has been in the offing for a while, the chances are almost certain now, and expectations of dollar strength have risen with Donald Trump’s plans to boost the U.S. economy, said Gao Qi, a strategist at Scotiabank in Singapore.

    “If depreciation pressure persists, offshore liquidity won’t loosen,” said Gao. “As the yuan continued to break above 6.8 and then 6.9, sentiment has changed. The onshore money market will remain tight.” 

    There’s a chance the People’s Bank of China will raise benchmark rates in the medium term to curb inflation along with yuan weakness, Gao added. Short-end bonds extended a selloff on Tuesday, with the one-year yield jumping seven basis points to 2.72 percent, the highest since the 2017 notes started trading in August and the most for the similar-maturity benchmark since May last year. In the onshore market, faster inflation and high corporate leverage have added to reasons for the PBOC to tighten funding conditions.

    The onshore yuan rate rose 0.08 percent to 6.9032 a dollar as of 4:43 p.m. in Shanghai, halting a three-day loss. It dropped 0.24 percent, the most since September, against a basket of 13 currencies. The yuan’s movement versus the trade-weighted gauge tends to follow the greenback, said Fiona Lim, a senior currency strategist at Malayan Banking Bhd. in Singapore.

    Here are some signs suggesting that yuan shorts are returning: 

    • One-month implied volatility in the offshore yuan rose to 6.69% on Monday, the highest since March
    • Three-month risk-reversal rates in the offshore yuan climbed to 1.97% on Monday, near a 4 1/2-month high reached in November
    • Points on 12-month non-deliverable forwards in the yuan reached 2,943.5 on Tuesday, the highest since February

    In the rest of China’s currency and fixed-income markets:

    • Government bonds declined, with the 10-year yield increasing one basis point to 3.2% after reaching a one-year high Monday; one-year interest-rate swaps were little changed at 3.29%, data compiled by Bloomberg show
    • The offshore yuan fell 0.07% to 6.9318 per dollar
    • China’s exchange rate has weakened against the dollar mainly in light of Fed tightening, said Mao Shengyong, spokesman for the National Bureau of Statistics. There are conditions for the yuan to remain steady against a basket of currencies due to sound economic fundamentals, he said
    • In November economic data released Tuesday, industrial production and retail sales beat estimates, advancing 6.2% and 10.8%, respectively, while fixed-asset investment climbed 8.3% as projected

    Dollar Wavers Ahead of Fed Meeting – WSJ

    Investors are widely expecting the U.S. central bank to raise interest rates Wednesday

     By   CHELSEY DULANEY

    The dollar wavered Tuesday as investors stuck to the sidelines a day ahead of the Federal Reserve’s latest policy decision.

    The WSJ Dollar Index, which measures the U.S. currency against 16 others, was down 0.03% at 91.29. The pound was among the best-performing major currencies against the dollar, rising 0.4% after strong U.K. inflation data.

    The Federal Reserve Building in Washington, D.C.
    The Federal Reserve Building in Washington, D.C. PHOTO: REUTERS

    The Fed will announce its latest policy decision Wednesday, and investors widely expect the central bank to lift U.S. borrowing costs for the first time in a year.

    Investors’ focus will be on the Fed’s statements for hints that the central bank could raise interest rates more aggressively going forward.

    Higher rates typically boost the dollar by making dollar assets more attractive to yield-seeking investors.

    ”We expect further U.S. dollar strength as the market re-prices more tightening from the Fed,” said analysts at Goldman Sachs in a research note. “That said, we also think that [Chairwoman Janet] Yellen will continue to emphasize that…data will dictate the future path of interest rates.”

    The Fed had expected to raise rates multiple times this year but was repeatedly stymied by global market turmoil and weak economic data. Recently, upbeat economic reports and President-elect Donald Trump’s stimulus plans have fueled optimism that the Fed could normalize policy at a faster clip.

    Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com

      ICCN to improve FDI inflow into Nigeria – Punch

      The International Chamber of Commerce Nigeria has stated its commitment to assist in improving the inflow of foreign direct investment into the country.

      The Chairman, ICCN, Mr. Babatunde Savage, in a statement by the Secretary-General of the Chamber, Mrs Olubunmi Osuntuyi,  on Tuesday said that Nigeria’s economic development hinges on the prospects of market impetus and trade facilitation with other nations for accelerated economic growth.

      He said ICCN through its partnerships with developmental institutions would encourage international trade agreements and policies that would attract FDI that would serve as a catalyst to economic development.

      He said, “Nigeria currently has large and untapped investment opportunities in various sectors of its economy; including mining, agribusiness and services. 

      “I would like to think there is something we can do if we muster enough political will: that is keying into the global agenda of the ICC on prosperity.

      “Since inception, our chamber has demonstrated its established capacities to regulate international business and steer the global economy in the right direction.

      “Besides these global regulatory roles, the ICC also stimulates growth and prosperity as it supports individual government’s efforts.

      “We counsel the United Nations and world leaders, like the World Trade Organisation, World Bank, G8 and G20, on trade and investments.

      “The ICCN would be more actively involved in activities that would further give more visibility and relevance to our country.”

      Savage in the statement said that the chamber through its commissions comprising experts in specialised fields from the private sector would facilitate cross-border transactions while enhancing best practices among companies.

      He said, “For developing countries like ours, contribution of trade to overall economic development is immense, owing largely to the obvious fact that most of the essential elements for development are almost entirely imported.

      “Nigeria is basically an open economy with international transactions constituting a significant proportion of her aggregate output.

      “To a large extent, Nigeria’s economic development depends on the prospects of her export trade with other nations.

      “Trade provides both foreign exchange earnings and market stimulus for accelerated economic growth.”

      ICC global network comprises more than six million companies, chambers of commerce and business associations in more than 130 countries.

      The United Nations, the World Trade Organisation, the G20 and many other intergovernmental bodies, both international and regional, are kept in touch with the views of international business through ICC.

      ICC was founded in 1919; ICC Nigeria became a member of the world body in 1979 and was reorganised in 1999, sequel to the realisation of the benefits that business community could derive from it.

      (NAN)

        Oil pact could quickly sop up market glut, says IEA – Punch

        A pact by leading producers to cut output could quickly begin sopping up the glut on the oil market that has weighed on prices, the IEA said Tuesday as it also hiked its demand forecast.

        The agreements, if implemented, would “hasten the market’s return to balance by working off the inventory overhang,” said the International Energy Agency, which analyses energy markets for major oil consuming nations.

        The recent deals are the first joint cuts by OPEC and non-OPEC nations since 2001 and aim to reduce production by just under 1.8 million barrels per day (mbd).

        “If OPEC and non-OPEC were to implement strictly their agreed cuts, global inventories could start to draw in the first half of next year,” it added. 

        The IEA said it was not making any forecast, but suggested that implementation of the pact could result in a draw of 0.6 mbd into stocks.

        Oil stocks in the advanced nations which fund the IEA hit a record of 3,102 mb in July.

        While they have since declined, “they remain 300 mb above the five-year average, providing a more than ample cushion going into 2017”, said the IEA.

        – ‘Implicit goal’ –

        The IEA also said that “an implicit goal” of the pact may be “to keep the price of oil from falling below $50” per barrel.

        Crude oil prices have risen by around $10 per barrel in recent weeks on the deals by the OPEC and non-OPEC nations.

        The benchmark international contract, Brent crude, was trading at around $55.99 per barrel in late morning on Tuesday, around 50 cents up from its level ahead of the report.

        “Clearly, the next few weeks will be crucial in determining if the production cuts are being implemented and whether the recent increase in oil prices will last,” said the IEA.

        A price of $50 per barrel is seen as the level at which it becomes profitable for many companies to produce oil.

        Oil exporting nations have been suffering with prices under that level, even dropping below $30 per barrel at the beginning of this year, as Saudi Arabia led OPEC nations in stepping up output in order gain market share and push rivals with higher production costs out of business.

        The IEA found that production increases by OPEC nations continued into November, rising by 300,000 bpd to 34.2 mbd. November output by OPEC nations was 1.4 mbd above that one year ago.

        The cartel currently accounts for around 40 percent of total output.

        At a meeting last weekend in Vienna, 11 non-members of OPEC agreed cut of production by 558,000 barrels per day, joining an earlier pledge by OPEC nations to cut output by 1.2 mbd for six months.

        The IEA said analysis of the market outlook for 2017 was complicated by the fact that OPEC will review in May whether to extend the output cuts.

        It said “OPEC also appears to be signalling that high-cost producers should not take for granted that they will receive a free ride to higher production”.

        The IEA noted however that US shale producers, the higher-cost producers that OPEC squeezed via low oil prices, appear to be stepping up investment, but made only marginal increases to its forecasts for North American output.

        – Demand growth –

        While supply will be restrained by the pact between leading oil producers, growth in oil demand has been stronger than forecast.

        “Global oil demand growth of 1.4 mbd is foreseen for 2016,” said the IEA, which is an increase of nearly 10 percent from its previous forecast and due in part to “robust demand” in the United States.

        Demand growth in 2017 is now seen at 1.3 mbd, up from its previous forecast of 1.2 mbd.

        That is still considerably below the five-year high of 1.8 mbd in demand growth registered in 2015.

        AFP

          The fall in sterling has few benefits and many costs – The Economist

          Consumer-price inflation will probably hit 3% in 2017

          IN THE past year, sterling has depreciated by 15% in trade-weighted terms, as investors have lost faith in the British economy following the vote to leave the EU. This makes it one of the world’s worst-performing currencies, alongside the Nigerian naira and the Azerbaijani manat. The hope was that the fall in the pound would spur export-led growth, especially in manufacturing. The reality is that Britain is looking at a nasty combination of high inflation and stagnation.

          Data released on December 13th show that inflation in November rose to 1.2%. This is the highest reading since October 2014, and was above economists’ forecasts. Some goods that are highly import-intensive rose sharply. Britain imports over 80% of its pharmaceutical products, and their prices saw year-on-year growth of 2.5%.

          Still, the impact of the weak pound has not yet been fully felt. Many British importers have used currency hedging to minimise the short-term impact of sterling’s depreciation (for instance, by loading up on foreign exchange before the referendum). Food prices actually fell in November, by nearly 2%. When these hedges expire, however, retailers will raise their prices. Some already have. In some supermarkets Marmite, a yeasty spread at the centre of a pricing controversy a few weeks ago, now costs 13% more than it did a few months ago. Consumer-price inflation will probably hit 3% in 2017, but some economists see it going higher than that.

          So far the damage caused by higher inflation shows little sign of being offset by an export boom, contrary to what many Brexiteers predicted at the time of the referendum. Trade data released on December 9th suggest that the weak pound has made little difference to exporters’ fortunes. Capital Economics, a consultancy, says that if particularly volatile goods are excluded, the three-month annual growth in goods-export volumes has not seen any meaningful rise since June. The trade deficit in the third quarter, indeed, was the highest since 2013.

          This is not a big surprise. British exports compete predominantly on quality rather than cost, making customers relatively insensitive to price changes. And British manufacturers have supply chains stretching across the world, so weak sterling pushes up their costs. Manufacturers’ input costs are now rising at 13% a year. In 2017 exports may increase a little, but there will be no boom. The weak pound is a sign of the weakness of the British economy, not a solution to it.

            Dollar steady as traders await clarity on Fed rate hike path – Reuters

            By Sam Forgione | NEW YORK

            The U.S. dollar was steady against a basket of major currencies on Tuesday on uncertainty over whether the U.S. Federal Reserve would signal a slow or fast pace of interest rate increases at the end of a closely-watched policy meeting.

            The Fed is widely expected to hike interest rates on Wednesday. It is less clear, however, if the central bank will indicate a more cautious pace of rate increases given a recent surge in Treasury yields and gains in the dollar or a faster pace on greater confidence that U.S. economic growth will accelerate.

            As of September, Fed officials’ median projection was for two rate increases next year. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

            “Understandably, the market is in a little bit of a holding pattern” ahead of the Fed’s policy statement, said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

            Franulovich said the Fed could signal a “dovish hike,” or a rate hike combined with a policy statement that alludes to recent strength in the dollar and higher U.S. yields as a potential constraint on growth, or a “hawkish hike” where the Fed raises rates and emphasizes faster growth.

            The dollar index, which measures the greenback against a basket of six major currencies, rallied nearly 4 percent between the Nov. 8 U.S. presidential election and last Friday. Benchmark 10-year Treasury yields hit 2.528 percent on Monday, their highest level in more than two years.

            Those moves have largely come about on expectations that U.S. President-elect Donald Trump will enact policies that increase spending and debt as well as spur growth and inflation.

            “There is a lot of suspicion that the Fed might be more dovish than hawkish at this point, given the very strong run-up in rates,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

            The U.S. dollar index .DXY was last down 0.06 percent at 100.970. The dollar was up 0.23 percent against the yen JPY= at 115.29 yen after hitting a 10-month high of 116.12 yen on Monday.

            The euro EUR= was last flat against the dollar at $1.0635 after briefly touching a five-day high of $1.0653.

            (Reporting by Sam Forgione; Editing by Paul Simao)