Yesterday afternoon, BoE governor Mark Carney delivered a very dovish speech, mentioning that the bank is considering host of measures to guard the economy from the shocks of Brexit and will act during the summer months, which was seen as a hint that the BoE will cut interest rates for the first time since 2012. GBPUSD tanked on the news however stock markets like it and skyrocketed higher.
Currencies: The GBP weakened heavily following Carney’s comments on the state of the economy after Brexit. The pair dropped 200 pips as the market believed that rates will be cut and probably more asset purchasing (money printing from the Central Bank) will take place. Against the JPY the GBP fell to 137.25 but held off a 3.5 year low of 133.65 made on Friday. EURUSD was also under pressure overnight, retreating from the 7 day highs of 1.1154 to as low as 1.1023. The AUD, often used as a proxy for China trade, stood flat at 0.7458 , having rebounded from last Friday’s low of 0.7305.
Stocks: After Mark Carneys speech stock markets quickly reversed course and closed higher on the day. The UK’s FTSE shrugged off all the post Brexit losses and closed 2.27% higher which was the highest level for this year. It is believed that the weak Pound is helping UK Companies corporate profits. Overall it was a bullish day for stock markets as the new reality of things are that the interest rates of Central Banks around the world are likely to stay low for a prolonged period of time. And stock markets love this. With fixed deposits not being a way to generate income, investors have to shift to other venues (usually stock markets) in search for higher returns on their investment. Yesterday’s gains were the best 3 day climb since February 17, pushing US indices back t positive area for the year.
Oil and Gold: Gold (1331.45) is close to the higher end of the near term range of 1305-35. It remains to be seen if Gold manages a breakout above 1335 to retest the previous week’s high of 1358. Oil fell on Thursday, pressured by returning Nigerian and Canadian output and as traders looked to book profits ahead of the long holiday weekend in the United States. Brent (50.06) and WTI (48.63) have come down from their respective resistance of 51 and 50. In Norway, oil companies and trade unions began two-day wage talks in a bid to avert a strike that would initially cut the country’s oil and gas output by 6%, the Norwegian Oil and Gas Association said.
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