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Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi,
The market continues to put the great back into Britain. The GBP is bubbly once again, trading among the world’s top currency performers so far in 2021.
And unlike the EURO resilience, it’s not merely a function of USD weakness, although the USD is on the defensive today as GBPUSD is veering back for a fresh challenge of 1.40. The Pound is gaining on the EURO, adding to the momentum, with EURGBP extending its decline, pushing below support levels established ago in April 2020.
There were no new headlines to drive GBP enthusiasm, so presumably, the themes of successful vaccine roll-out, no material dislocation from Brexit so far, and a stronger than expected Q4 20 GDP print continues to cheer spirits.
The USD is still trading soft with no fresh catalysts to give the move real conviction. But it appears the dovish FOMC minutes are perhaps setting the tone.
Yuan doing some catch-up
With China coming back from holidays, USDCNH is doing some catch-up to the USD/US yield move earlier this week as spot climbed above 6.46 in Asia despite a lower-than-expected fix.
There was a further push higher across USD/Asia at the New York open, led by USDCNH trading up to 6.47. But this could be a delayed reaction to China placing the control on rate earth mineral export to China as so far, there hasn’t been any talk of the People’s Bank of China (PBoC) influencing the window.
But this is not the first time China has considered using its dominance in rare earth minerals as a retaliatory measure/negotiation tactic in bilateral disputes.
For the time being, I don’t think China will look to pull this string anytime soon. Hence, I remain constructive on RMB.
The Malaysian Ringgit
The ringgit is weaker and following the Yuan’s lead, as is the rest of dollar Asia with US real rates on the rise. But compounding matters is that oil prices may continue to decline on Texas weather pattern improvements amid early pre-positioning for the OPEC meeting in March.
Gold continues to struggle
Gold continues to struggle under the weight of real US yields but getting a timely reprieve from the weaker US dollar. Otherwise, the yellow metal would be trading below $1750.
The street continues to watch the EURUSD movements like hawks. A move above 1.21 could provide and Alka seltzer moment, while a shift back to the low 1.2000’s could be the harbinger of doom for gold.
