US dollar to stay bullish as the pound falters amid Brexit woes

The US midterms came and went and, as if we don’t need more volatility and uncertainty, we now have a split in Washington.

For once the projections were accurate with the Democrats taking the House of Representatives while the Republicans took the Senate. This leaves Donald Trump and his future policies precariously placed. Such a situation leaves Washington in political gridlock, which will see it far more difficult for the president to get his agendas passed and this should lead for an interesting end to this year and start of next.

The US Dollar Index has gained following the midterms, albeit amid choppy price action. We saw the index surging towards 97.50 levels before finding support at 96, above which we are seeing good consolidation. I maintain my dollar bullish bias and expect to see consolidation above 97 levels through December.

The US economic calendar is packed over the next two weeks; some of the key releases I am watching out for include the US GDP reading for the third quarter (due out today) expected at 3.5 per cent quarter on quarter. Tomorrow sees the release of the PCE deflator, a measure of the price pressure of goods and services produced and consumed domestically in the US.

Any beat on the year-on-year figure would lend good buying support in US assets in the immediate short-term. This is followed by the US Federal Open Market Committee meeting minutes, due out on Thursday. Keep an eye out for the US nonfarm payrolls report on December 7; expectations are for payrolls to grow above 205,000, with average hourly earnings to grow to 0.3 per cent month-on-month. Again, growth in the weekly earnings will support dollar long positions. And finally, the US data docket is rounded off by the overall inflation print due on December 12.

_________

Resilient dollar to ride out mid-term election volatility

Investors head for shelter amid Italy's budget woes

The US dollar dip is a buying opportunity for investors

Currencies under the spotlight amid trade woes

________

With the US midterms out of the way, forex markets turned their attention back towards the UK and EU. Over the weekend, the EU ratified Theresa May’s Brexit proposal and now attention will turn back to the UK as Mrs May embarks on a hectic campaign to raise support for her plan in the lead up to the parliamentary vote which falls in two weeks’ time.

Early voting patterns suggest Mrs May has an ardent task ahead of her as she faces opposition within her own party to get this deal done. At last glance, 409 MPs currently sit against the deal (out of which 90 are from May’s Conservative party) while 230 are in support of her deal. Like all political events these days, this will be hard to predict but one thing is for certain – volatility in pound crosses will remain high during the first two weeks of next month.

Last month, we expected to see a breakdown in GBP/USD towards 1.27 levels (on November 15, the cross sunk as low as 1.2723 on Dubai Gold & Commodities Exchange. The pound has since been consolidating above 1.2780 but has been clearly lacking upward traction.

Ongoing pessimism around Mrs May’s efforts could see a selloff towards the channel between 1.2660/1.2680 with upsides capped at 1.2930 levels. If Mrs May cannot get this deal passed, Brexit negotiations would move back to square one which would spark a longer term bear rally – exposing further downsides in the pound which could see a move towards 1.20 levels against the dollar in a worst case scenario.

With two weeks of trading to go, it would prove ardent to build short positions with small take profits in the lead up to the week of December 10 at which point traders should limit their pound exposures heading into the UK parliamentary vote.

Like the pound, the euro remains under pressure against the Greenback. Following the midterms, the common currency sunk as low as 1.12 levels before rallying to 1.1470. Recent favourable developments of Italy’s concurrence with EU budget rules have kept euro longs interested. However for December, expect the euro to remain under pressure as a result of Brexit. Also, expect to see a weaker EUR/USD, which looks more susceptible to a move towards 1.12 versus a move towards 1.15 in the weeks ahead.

Gaurav Kashyap is a market strategist at Equiti Global Markets. The views and opinions expressed in this article are those of the author and do not reflect the views of Equiti

At a glance

Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.

Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year

Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month

Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30

Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse

Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth

Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances

Results

6.30pm: Al Maktoum Challenge Round-2 Group 1 (PA) US$75,000 (Dirt) 1,900m

Winner: Ziyadd, Richard Mullen (jockey), Jean de Roualle (trainer).

7.05pm: Al Rashidiya Group 2 (TB) $250,000 (Turf) 1,800m

Winner: Barney Roy, William Buick, Charlie Appleby.

7.40pm: Meydan Cup Listed Handicap (TB) $175,000 (T) 2,810m

Winner: Secret Advisor, Tadhg O’Shea, Charlie Appleby.

8.15pm: Handicap (TB) $175,000 (D) 1,600m

Winner: Plata O Plomo, Carlos Lopez, Susanne Berneklint.

8.50pm: Handicap (TB) $135,000 (T) 1,600m

Winner: Salute The Soldier, Adrie de Vries, Fawzi Nass.

9.25pm: Al Shindagha Sprint Group 3 (TB) $200,000 (D) 1,200m

Winner: Gladiator King, Mickael Barzalona, Satish Seemar.

Real estate tokenisation project

Dubai launched the pilot phase of its real estate tokenisation project last month.

The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.

Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.

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Multitasking pays off for money goals

Tackling money goals one at a time cost financial literacy expert Barbara O'Neill at least $1 million.

That's how much Ms O'Neill, a distinguished professor at Rutgers University in the US, figures she lost by starting saving for retirement only after she had created an emergency fund, bought a car with cash and purchased a home.

"I tell students that eventually, 30 years later, I hit the million-dollar mark, but I could've had $2 million," Ms O'Neill says.

Too often, financial experts say, people want to attack their money goals one at a time: "As soon as I pay off my credit card debt, then I'll start saving for a home," or, "As soon as I pay off my student loan debt, then I'll start saving for retirement"."

People do not realise how costly the words "as soon as" can be. Paying off debt is a worthy goal, but it should not come at the expense of other goals, particularly saving for retirement. The sooner money is contributed, the longer it can benefit from compounded returns. Compounded returns are when your investment gains earn their own gains, which can dramatically increase your balances over time.

"By putting off saving for the future, you are really inhibiting yourself from benefiting from that wonderful magic," says Kimberly Zimmerman Rand , an accredited financial counsellor and principal at Dragonfly Financial Solutions in Boston. "If you can start saving today ... you are going to have a lot more five years from now than if you decide to pay off debt for three years and start saving in year four."

LAST-16 FIXTURES

Sunday, January 20
3pm: Jordan v Vietnam at Al Maktoum Stadium, Dubai
6pm: Thailand v China at Hazza bin Zayed Stadium, Al Ain
9pm: Iran v Oman at Mohamed bin Zayed Stadium, Abu Dhabi

Monday, January 21
3pm: Japan v Saudi Arabia at Sharjah Stadium
6pm: Australia v Uzbekistan at Khalifa bin Zayed Stadium, Al Ain
9pm: UAE v Kyrgyzstan at Zayed Sports City Stadium, Abu Dhabi

Tuesday, January 22
5pm: South Korea v Bahrain at Rashid Stadium, Dubai
8pm: Qatar v Iraq at Al Nahyan Stadium, Abu Dhabi