British Pound Is Today's Focus Amid Mideast, China Tensions

04/11/2018 11:34 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The British pound may be the place to focus – as it’s the first to expect another hike (May still 85% priced) but the data suggest patience and time are needed. Maybe it’s telling us that war is more important than peace, writes Bob Savage, CEO of Track Research Wednesday.

“We can know only that we know nothing. And that is the highest degree of human wisdom.” ― Leo Tolstoy, War and Peace.

Markets hate uncertainty but politics breed it and policy makers grow it. There is a fragile armistice today as the U.S. retaliation fears against Syria’s Assad and potential conflict with Russia are in the spotlight balancing against the U.S./China trade war fears going dark.

China PBOC Yi noted he plans to further open financial markets and that the Chinese yuan (USD/CNY) wouldn’t be devalued in any trade spat.

The Eurocontrol flight center warned airlines about flying in the eastern Mediterranean over the next 72-hours.

President Trump canceled his visit to Peru to help build a coalition for action over the chemical attacks last weekend.

Today is also about growth and inflation with higher commodity prices flashing red signals while China price data suggests green. Lost in the translation is a return to the Goldilocks global economic environment where policy makers are paid to wait on rate normalization allowing further bubble building in equities and property.

Perhaps that is best reflected in the euro/Swiss franc (EUR/CHF) rally to 1.1835 – most since January 2015 before it’s SNB depegging.

Returning to worry the markets today – U.S. CPI, FOMC minutes and the ongoing fear that Trump’s war is with politics as he seems ready to fire the special investigator Mueller bringing back harsh memories of Nixon and Watergate.

The data overnight didn’t matter that much – China inflation is tame, UK trade and IP suggest further slowing of the economy, while the RBA sounds muted in its hawkish outlook and the BdF keeps its modest 0.3% q/q 1Q forecast as Manufacturing goes soggy.

All told, the British pound (USD/GBP) may be the place to focus – as it’s the first to expect another hike (May still 85% priced) but the data suggest patience and time are needed. Maybe it’s telling us that war is more important than peace. Watching 1.4245 the 200-week moving average for confirmation.

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