The three Rs – rand, rouble and real – continue to lead the 2019 foreign exchange market race, though the top 10 currencies also include three pesos of Chile, Colombia and Mexico, and the Chinese yuan, gold, sterling and the Canadian dollar, says a leading city analyst.
In a note to clients, Kit Juckes, Head of FX at Société Générale, said: “There's a lot going on in the market but the continued stability/resilience of the yuan as US/Chinese trade talks resume, and [US Treasury Secretary] Steve Mnuchin makes encouraging noises, is a comfort to the a lot of emerging market currencies and an anchor on the dollar, while gold's strength may continue to be a central theme of 2019.”
The SocGen expert also said the pound was enjoying a good start to 2019, but political progress over Brexit remains slow. “Tuesday (29 January) saw one amendment - to rule out a no-deal Brexit - fail to pass and another - to re-open talks on the Irish backstop - pass. The result is that PM May heads off to Brussels seeking to persuade her EU counterparts to do something they have said they simply can't do. That leaves the danger of a deal-less departure still alive, even if it is unlikely.
"A reversal of the referendum is also very unlikely, but still possible. Most likely, is that a deal will be reached but only after talks go into extra time and a delay is agreed.”
Sterling FX volume spiked less on the latest round of votes than the last one. "EUR/GBP will probably settle into a 0.865-0.885 range for a while now, with a break back over 0.90 only really on the cards either if EUR/USD breaks higher (unlikely) or a no-deal Brexit becomes more likely. GBP/USD longs will appeal (a lot) to anyone who thinks a no-deal exit is inconceivable and think the euro is a long-term buy.”
Elsewhere in his note, Juckes said US Treasury yields have failed to make any upward progress this week and will anchor the dollar, particularly against any currency that benefits from trade peace, CNY strength and stronger oil and metals prices.
“CAD, AUD and NOK can all thrive. We like short EUR/AUD and long NOK/SEK, as well as short EUR/JPY though that isn't going to get much help from trade talk optimism,” he concluded.
