The Pound has flattened ahead of the British and European diplomats meeting that might shed light on how much they have to pay for independence.
The inner-party discord over the exit terms forced Prime Minister May to extend the upcoming parliament session to two years in order to warrant political consensus. The group sent to Brussels consists of former diplomats and May adviser, however, in the absence of a majority government, the coordination of political stance and its discussion with European partners can take an indefinite time, what creates a downward pressure on the British currency. Those risks are balanced though considering BoE stance which is increasingly inclined to take restraining measures in the fight against inflation. Last week meeting showed three members of the committee called for an increase in the rate and if the data continue to remain disappointing, the chances will increase even more. GBP/USD remains in positive territory, however, in the absence of catalysts for growth, Pound shorts may become the preferred choice in the first half of the week. Risk concerns are mainly kerbed as defence assets retreat, VIX index sways around 10 points, historically low level.
Oil prices kicked off the week with a decline. The net position according to CFTC decreased moderately from 382.5 to 359K contracts. Data on US reserves will appear on Tuesday and Wednesday, but taking into account that American firms shifted to short-term profit target while prices are falling, the pace of growth may slow down. The WTI barrel lost half a percent at the time of writing this article, despite the transfer of the contract maturity date to August with a higher price.
Futures on the Dollar fell as the contract maturity date was transferred to September, the market trades backwards. Last Wednesday, the FED raised the key rate by 25 bp and announced its plans on shrinking the balance sheet. The process will cause a drop in the “guaranteed” market demand, and will not increase the supply since the regulator has so far announced the termination of the reinvestment policy, which consists of spending the coupon income for the purchase of new bonds. The reaction in the form of falling yield bonds can be called “strange”, demonstrating the obvious disagreement of the market with the decision of the regulator. The economic calendar is relatively empty today, but it’s advised to pay attention to the comments of the Federal Reserve representatives, in particular – Evans and Dudley.
The Bank of Russia reduced the interest rate by 25 bp to 9% at a meeting last Friday, thus remaining on track of the easing policy. The regulators hinted that there might be more than one interest rate reduction this year, dashing the appeal of the ruble as an asset for carrying trade. Lowering the rate will probably increase the propensity to consume, which will give the economy an additional impulse. The ruble remains stable below 58.00 due to the flow of speculative capital though there are no catalysts for volatility increase considering the overall global market calm.
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