Brazil Central Bank Plans $2 Billion Dollar Auctions to Support FX Liquidity 
Wall Street Analysts Weigh in on Latest NFP Data 
China’s Growth Faces Structural Challenges Amid Doubts Over Data 
Japan’s Inflation Edges Higher in October as BOJ Faces Growing Pressure to Hike Rates 
US Gas Market Poised for Supercycle: Bernstein Analysts 
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios 
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure 
Trump’s "Shock and Awe" Agenda: Executive Orders from Day One 
BOJ Signals Possible December Rate Hike as Yen Weakness Raises Inflation Risks 
Moldova Criticizes Russia Amid Transdniestria Energy Crisis 
Japan’s Finance Minister Signals Alignment With BOJ as Rate Hike Speculation Grows 
UBS Projects Mixed Market Outlook for 2025 Amid Trump Policy Uncertainty 
Fed Officials Split as Powell Weighs December Interest Rate Cut 
Indonesia Aims to Strengthen Rupiah as Central Bank Targets 16,400–16,500 Level 
In the recent past, shorts in GBP positions were activated to carry out as the FX market appears to be acknowledging the veracity of a Brexit process that has effectively been dubious with topsy-turvy developments.
It’s been a highly eventful period for GBP with several political developments as well as macro developments. BoE is scheduled for the monetary policy on August 2nd, on the macro front, the softer-than-expected inflation was the main development and according to many economists, has added uncertainty around what appeared to be a near certain August MPC rate hike. Rates market pricing for August has hardly budged following the CPI report (83% still priced in), but hikes further out the curve have now been pushed back.
Meanwhile, domestic politics remain complicated. PM May indeed survived the votes on the Custom and Trade Bill amendments earlier in the week and although there is heightened degree of conflict among pro-EU and Brexiteer wings of the Conservative Party the likelihood of an immediate confidence vote in May's leadership of the Conservative party has now declined.
Nonetheless, the Chequers proposal would not be unacceptable to the EU. Negotiations will likely continue over August with the European Council meeting on 18 October the next staging post. Given the lack of progress on the Irish issue in the Withdrawal Agreement, the noise around the potential of a ‘no-deal’ will likely increase over the coming months. Our baseline view remains that the UK will eventually achieve a managed transition in March 2019.
While we decisively devised trade strategies not to curb our GBP shorts vs USD and JPY ahead of hawkish tilt from the BoE in the recent past as we felt that the EU summit discussions had the potential to serve as a wake-up call for a market that had hitherto appeared disinterested in the lack of substantive progress that has been made towards securing a withdrawal agreement.
As discussed above, the reduction in Eurocentric political risk combined with the improvement in the continental data flow warrants rotating cash positions in GBP from JPY and USD into EURGBP and GBPCHF.
In addition, the release of the BoE’s latest Financial Stability report yesterday this week highlighted the material risks of a disruption to financial services from Brexit, a finding that is at odds with the rather more insouciant attitude of a hawkish-leaning MPC and also the front-end of the UK curve (which prices a 2/3 chance of an August hike).
Square off shorts in GBPJPY at +0.31% (as advocated in our technical section on 20th) and activate 2w/2m diagonal credit put spreads (146.668/145.464).
Buy 6M GBPCHF - GBPUSD vol spread, equal vega.
Buy EURGBP at 0.8860, stop 0.8650. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly USD spot index is inching towards -119 levels (which is bearish), while GBP is flashing at 65 (which is bullish) while articulating at (12:05 GMT). For more details on the index, please refer below weblink:
