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Daily Brief

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The elephant in the room

Winners

Two currencies stood out from the crowd: the Canadian dollar and the Japanese yen. Both strengthened by 1.2% against sterling and by an average of 0.9% against the other majors. The Loonie's winning card was a Bank of Canada statement; the yen's was its presumed safety.

The BoC's increase to its benchmark interest rate was totally yawnworthy.  Investors had known that 1.75% was coming and there is was. However, the tone of the statement was considerably more hawkish than investors had been ready for, especially the comment that "the global economic outlook remains solid".  Although not all investors shared the bank's optimism they felt obliged to mark the currency higher.

Paradoxically, at the same time as they were buying into the optimism of the BoC investors were seeking the safety of the yen. Falling equity prices around the world were another symptom of the nervousness. As the pendulum of sentiment swung back to risk-off, the yen went from zero to hero: it is now five days in succession that it has alternated between first and last position among the major currencies.

The losers

South Africa's rand was Wednesday's least popular currency by a considerable margin. It fell by 1.3% against the pound and by an average of 1.6% against the majors. Sweden's krona was in penultimate place, falling by 0.2%, and the Norwegian krone was just ahead of it alongside sterling.  

It is only a fortnight since investors hailed the appointment of South African finance minister Tito Mboweni. The rand strengthened by 5% between then and yesterday lunchtime. But then, in his budget speech, Mr Mboweni put them to flight with talk of wider deficits and slower growth.

The krona was a net loser after the Riksbank kept its benchmark rate unchanged. Even though it is likely that an increase will come before the end of the year, investors were evidently hoping for more than that

ECB, Norges and CBRT

Three more central bank policy decisions are on the agenda for today. None is expected to result in a change to the benchmark rate but investors will check the statements for pointers to what might happen next, and when.  The top-billed ecostat in the next two days is  US growth, tomorrow.

There is zero chance of any alteration to the ECB's deposit (-0.4%), refinancing (0.0%) and marginal lending (0.25%) rates. There is every chance, though, that the ECB president will talk about the run-down of the bank's quantitative easing programme. Will he be more dovish as a result of falling equity prices and Italy's budget battle?  And will the Turkish central bank feel the need to tighten? In view of the lira's recent upward progress, probably not.

On Friday afternoon the US Bureau of Economic Analysis will announce its first stab at gross domestic product for the third quarter of 2018.  Economists expect growth to have slowed in Q3. They are looking for an annualised rate of 3.3% after Q2's 4.2%.  

the joint winner after hawkish BoC statement

the joint winner after hawkish BoC statement

shares the lead as nervousness hits equity markets

shares the lead as nervousness hits equity markets

pummelled after Mboweni budget speech

pummelled after Mboweni budget speech

softer after no-change Riksbank decision

softer after no-change Riksbank decision

braces for ECB policy update

braces for ECB policy update

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