GBP extends rout against USD on Carney's comments

Wednesday, January 20, 2016

The pound sterling dropped to its lowest level against the USD since 2009 yesterday as Bank of England Governor Mark Carney signalled that it was too soon to consider a rates rise, pushing back the expectation further. Many have viewed the pound as overvalued against the dollar and since the start of the year the currency has lost over 4% against the dollar as comments from the Governor offered investors an indication as to when a rates rise could be expected. The short answer seems to be not any time soon and indeed we could realistically see the first rate hike in 2017 now. Citing weaker oil prices, increased market volatility globally and significant uncertainties surrounding China Mr Carney made it clear that just because the US increased rates last month and indeed is expected to hike rates multiple times this year UK investors should not take this as a cue for the UK central bank to act. Cable currently trades around 1.4170 this morning having hit 1.4130 yesterday in what was a volatile trading session. We expect some stability today as we trade around this technical level of support but dollar strength is likely to dominate in the near term.

Crude oil came under renewed pressure yesterday as Brent front month futures attempted to recover back above $30/bbl, however, these efforts were in vain as markets slid lower giving back the majority of the day’s gains. The global benchmark has slid lower early on this morning, trading around $28/bbl as the risk-off mood resumes after yesterday’s rally in Europe failed to gain any significant traction on Wall Street. Expectations for Iran to increase production by 500,000 barrels per day were confirmed after the oil ministry issued an official order which further knocked sentiment. With the global supply glut only set to worsen we expect weaker crude prices to dominate the trading landscape and saving any material cuts from producers we could see prices fall to new multi-year lows.

Spot gold prices rallied strongly overnight and early this morning as the safe haven asset traded back above $1,096/oz. It’s been a volatile few sessions for the precious metal as investors react to the shifting global sentiment with whipsaws in both directions. Firm resistance seems to be forming on the approach towards $1,100/oz and last week’s attempts to gain a foothold above the 100 day MA, then around $1,111/oz, failed to garner the necessary momentum for additional moves higher. While the risk-off mood permeates global markets we anticipate firm support for gold around $1,090/oz and we could see spikes higher on any substantial inflows to ETF holdings.

GBP comes under renewed pressure against USD

GBP Curncy British Pound Spot 2016 01 20 07 44 48

Haven demand supports gold early on today

XAU Curncy Gold Spot Oz D 2016 01 20 08 41 23

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Topics: Gold, Crude oil, Brent, BoE, GBP
More from: Kash Kamal