Good morning,

If you missed them last week, our outlooks and expectations for no fewer than 19 different currencies in 2018 are now live and available on our blog. You can view them all at Please feel free to get in touch with any questions you may have.

CNY/CNH – Adding volatility

News reports yesterday suggested that the People’s Bank of China has changed the way that it fixes (and therefore prices) its currency by doing away with the “counter-cyclical” factor within its calculations. To cut a long and not particularly interesting story short, this factor was added to the PBoC’s numbers last year in a bid to reduce volatility in the currency from one daily fixing to another. Should the authorities have decided that such a matter is no longer necessary then it is a sign that while this may invite additional volatility into the currency that is not so much of a concern anymore.

The move itself weakened the CNH a tad over the course of the trading day but this tinkering is not a sea change in the exchange rate policy of the world’s second largest economy. USDCNH is currently around the 6.52 mark but we expect the pair to move towards 6.60 and sell off from there.

GBP – Higher prices to come

A British Chambers of Commerce report noting that businesses in the UK are expecting price rises to continue is keeping the pound supported this morning. According to the industry body, 36% of services companies and 50% of manufacturers are expecting price increases despite inflation already reaching the highest level in 5 years in November. Unfortunately the report also notes that “The UK economy is set to continue on an underwhelming growth trajectory over the near term with uncertainty over the impact of Brexit coupled with high inflation and weak productivity”.
We made an error in telling you that the UK industrial production numbers were yesterday; in fact they are due at 0930 today. As we noted yesterday these are a great opportunity for the UK economy to back up strong sentiment – seen last week in the PMIs – with output numbers to match. The PMI was strong on export order growth, it will be interesting to see whether that has followed through into output.

ZAR – You couldn’t make it up

Currency markets are at times wonderfully simple, and at times incredibly frustrating. Yesterday’s moves in the rand were a case in point for the latter. Emerging market currencies are inherently more volatile than their developed market cousins, especially when it comes to the politics of it all.
The rand spiked in early trade yesterday after false reports hit newswires that President Jacob Zuma had resigned. He is set to be replaced by the new leader of the ruling African National Congress, Cyril Ramaphosa and had been clinging on to power a little longer than most investors would like; his leaving is seen as a positive for the rand.
The story gets weirder when you realise that, at the same time as the rand was doing backflips, news was coming through that a US satellite had been lost. The satellite’s name was ‘Zuma’. News-reading trading programs called ‘algos’ may have read headlines, seeing ‘Zuma’ and ‘lost’ and used that as a reason to buy the rand.
 It’s not a perfect explanation but the best one we have. We’ll probably never know but the rand settled down as the day went on.

The day ahead

Apart from UK industrial production numbers, the data calendar is quiet today. We do have three members of the Federal Reserve – Evans, Kaplan and Bullard – speaking this afternoon on the US economy and their policy outlooks for the future.
Have a great day.
Jeremy Cook, Chief Economist