Morning Commentary: The Top Performing Currency of 2019?

Foreign Exchange - Morning Commentary

The Top Performing Currency of 2019?

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
You would have been hard pressed to have guessed that the top performing major currency of 2019 after the first few days of the New Year. We have tried to educate our readers that politics and the markets are heavily intertwined and that political developments need to be monitored in the same way that analysis of economic data takes place. Only in hindsight does it make any sense that the events on January 3 of this year would lead you to believe that the British pound (GBP) is the top performing major currency this year rising by 4.40% against the U.S. dollar.
On January 3, 2019, PM Theresa May submitted her Withdrawal Agreement (WA) to Parliament to seek approval to continue to move forward on the Brexit negotiation.  The WA agreement was overwhelmingly defeated by not only the opposition but by her own party, and the (GBP) got slammed lower as the market became concerned about a potential vote of no confidence in PM May.
But the low for the GBP was made on the day of the disastrous vote on the WA and PM May easily survived the vote of no confidence the next day. Markets quickly looked beyond the short term negativity realizing that Parliament would be forced to have a stake in these negotiations and iron out their differences to find common ground along with PM May to negotiate a deal that was palatable to all of those concerned.
Since then, the GBP has continued to rebound and is up for the fourth straight day as short GBP positions continue to get squeezed out. Yesterday, the GBP appreciated by nearly 1.20% which was its best performance since last November. Small incremental progress continues to be made regarding Parliament’s opposition to certain parts of PM May’s plan with key Brexit purists softening their stance creating the likelihood of an extension beyond the March 29 deadline. The EU still needs to sign off on the possibility of providing more time for the U.K. to bridge their differences, but for now, a hard Brexit is becoming less likely.
  • Canadian inflation in January fell to a 15-month low as inflation rose by just 0.1% in January bringing the YoY inflation rate down from 2.0% to 1.4%. Gasoline prices have reversed course from 2018 and have now fallen for six straight months dropping by nearly 14%. Oil prices are higher today and the Canadian dollar has ignored the weaker inflation data to be up on the day along with the Norwegian krone.
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This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
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