The Brexit saga continues with no agreement between the PM and Parliament. Theresa May has suggested that the end of March deadline might be extended. Trade negotiations between the US and China have made some headway. The rather surprising outcome was that the pound strengthened during the month, outpacing the strengthening dollar.
Brexit developments. The Brexit time frame appears to have become more flexible as we approach the March 29 deadline. The new uncertainty caused cabinet Minister for Farming, George Eustice to resign. These different factors added to the pound’s volatility. The pound’s direction from here is very difficult to forecast as there are too many variables.
US-China trade issues. US trade negotiations with China have made headway, and an agreement may be signed when Trump meets with Xi. China agreed to buy about $200 billion worth of farm equipment and other goods from the US. The Chinese yuan strengthened in February, but ended the month almost unchanged from the end of January.
Major and emerging market currencies declined across the board against the US dollar this month with the exception of the British pound.
US-North Korea peace talks fell apart abruptly when Trump left the table. The Japanese yen weakened on the breakdown in talks with North Korea, losing about 1 yen to the dollar.
Global Growth. ECB Head Mario Draghi and a number of central bankers are concerned that global growth is showing signs of contraction. This will hold back the euro despite any news that favors the euro.
The Federal Reserve. Chairman Jerome Powell repeated that he is taking a patient stance on any interest rate changes as he watches uncertainties in the economy. With no interest rate hikes likely, the dollar should hold steady as interest rate differentials remain unchanged.
The ECB. Mario Draghi said he has no change in the interest rate outlook and is sticking with his cautious approach. The prospect of more funding from the ECB is becoming more likely. This changes the bias in favor of and could weaken the euro, given the continuing push higher by the dollar.
More certainty prevailed during February. US bond yields rose due to increased caution from the Federal Reserve.
Stocks rallied through the month as chances of a trade war with China receded and as Trump extended his trade tariff deadline. Positive comments from both Trump and the Chinese top trade negotiator Lui He increased confidence and risk appetite.
The US Government funding bill extended funding to September 30, averting another government shutdown.
The Canadian dollar declined at the end of the month as Canadian GDP came in lower than expected. Falling oil price also drove the loonie lower in volatile trading at the end of February.
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- FX Risk Advisory: The Chinese renminbi may move as market uncertainty rises
- Five themes that matter to FX markets in 2019
- India’s capital markets suffer heavy selling – rupee lower
- New Taiwan dollar low volatility
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Data sources: Bloomberg 2019
*Bloomberg Q3’ 2018 FX forecasters are ranked based on three criteria: margin of error, timing (for identical forecasts, earlier ones received more credit) and directional accuracy (movements with the currency’s overall direction). The rankings which were based on Bloomberg’s foreign exchange forecasts (FXFC), were for forecasters who provided forecasts for Q3’ 2018 in at least three of the four preceding quarters but no later than one month prior to September 30, 2018.
Scores were calculated each quarter for the three criteria, which were weighted 60 percent, 30 percent and 10 percent, respectively. The final score for each currency pair was the time-weighted average of the four quarterly scores.
The best overall forecasters were identified by averaging the individual scores for each firm on all 13 currency pairs and all four quarters. Forecasters had to be ranked in at least eight of the 13 pairs to qualify for the overall ranking (54 firms qualified). All ranking tables display the top 20 percent of the forecasters who were eligible, to a maximum of 10 names.
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