The fall of sterling and rising oil prices were the main and unexpected parallel trends of world markets in recent days. The Russian currency is expected behaves directly in opposition to the British – it is essential for a long time the growth of the ruble. What explains both of these trends and how they should be taken?
Current week was marked by two unexpected trends in the world markets – record drop of the British currency and a rising oil price above 50 dollars per barrel.
“The ruble in the moment to strengthen below 60 rubles to the dollar, but not for long”
The pound came under pressure after the British foreign Secretary Theresa may has announced “tough” Brucite, marking the start of the country’s withdrawal from the EU in March 2017. As a result, the day the British pound was rewritten 31-year lows to the dollar. Since the beginning of the week, he lost about 3%.
Some experts say that the impetus for the fall of the pound has also become the call by Hollande for the EU to take a tough stance in the negotiations on Brucite, and gave rise to a wave of sales. “However, this is only a flimsy pretext for the movement, which was triggered by an electronic data feed and the lack of someone who could use a firm hand to stop volatility,” – said the chief currency strategist Saxo Bank John hardy.
On Friday morning the pound fell again against the dollar – to 1,1789, a new low since 1985. But already the day the British currency slightly went up. Whether to wait for the resumption of the negative dynamics and new lows for the pound against the us? Opinion on this was divided.
“Early to speak about the trend regarding the fall of the pound. Quotes GBP/USD formed a corridor, which will be traded before the emergence of clarity regarding the actual effects Brekzita for the UK economy. It is not excluded that changing information background quotes to return to the area of 1.30,” – said the head of analysis of financial markets “kit Finans” Vasily Koposov.
Financial analyst FxPro Alexander Kuptsikevich does not exclude that the British currency can not go to a full recovery. First and foremost, because the weak pound is beneficial to the UK economy. “The downtrend of the pound against the dollar persists for more than two years old when he rose to 1.70 against the current level of 1,2330. Of course, it was difficult to predict such a steep drop in the British currency. Because of this possible movement up in the near future, but most likely, it will be the bounces within a downtrend. A positive for the economy by currency depreciation is unlikely to overcome the negative impact of the process of withdrawal of Britain from the EU and the attendant care of business and soft monetary policy of the Bank of England,” – says Kuptsikevich.
The British authorities themselves at the end of June were positive to the collapse of the pound, like an expert. “In these circumstances we can hardly expect that the Bank of England will refuse a rate cut later this year, or that come from intervention in defence of a national currency. In the twentieth century, Britain helped the economy at the expense of weakening its own currency. Obviously, this well-proven technique will be adopted in the XXI century”, – said Kuptsikevich.
The devaluation of the pound helps UK exports, improved the indexes of business and consumer sentiment. “The collapse of the currency is a stuffing of adrenaline in the blood of the economy. However, a lot of this natural doping can destroy the credibility of the British pound and hurt investment. While this is no indication, but the pound below 1,20 authorities should seriously think about it,” – says Kuptsikevich.
Where is the oil and whether the rouble below 60?
Oil this week are also hitting record lows, trading above $ 50 per barrel. This occurred against the backdrop of OPEC’s decision to sign the documents at the end of November to reduce production and periodic verbal intervention by the member countries of the organization this week. Thus, it became known that OPEC will meet again next week to discuss the issue of allocation of quotas to reduce production. It is expected that this meeting will join the Minister of energy of Russia Alexander Novak. Russia says it is ready to share with OPEC’s desire to reduce the surplus supply of oil on the market.
“Of course, after OPEC shows a serious commitment to addressing the imbalance between demand and offer, overcoming all internal differences, and even with the participation of Russia, speculators are afraid to open short positions. Market sentiment is now much more prepped up”, says Valery Polkhovsky from Forex Club. Help oil also data on reduction of reserves and production in the United States.
“Everything is now signalling the possibility of further growth (oil prices). The only thing with the position of technical analysis contracts look somewhat overbought; and may require correction. Accordingly, the prices will continue to rise. Growth target for the December contract for Brent is seen as a mark of 55 dollars per barrel”, – says Polkhovsky.
However, Koposov believes that oil before the summit of OPEC will be traded in area of $ 50. “Strong growth until too many uncertainties in terms of implementation reached in the Algiers accords. Iraq, Iran, Nigeria, Libya – regions are obviously losing due to the production cuts of OPEC,” he said. Then the pressure on oil prices may provide a stronger dollar if the fed does decide to raise interest rates before the end of this year.
Meanwhile, such a big positive for oil not so strongly reflected in the exchange rate. The Russian currency strengthened, however, much more modest than oil. Experts do not exclude that the ruble in the moment to strengthen below 60 rubles to the dollar, but just a little bit.
At the same time, the current position of the ruble and oil is extremely beneficial both for Russian business and for Russian budget. “Oil now costs more than 3,250 rubles. Values above 2900-3000 is not of concern from the Ministry of Finance. People and business are important to another aspect of the current situation – the currency fluctuates in a relatively narrow corridor for more than six months. It is able to increase the confidence in the national currency,” says Alexander kuptsikevich.
The expert gave a forecast exchange rate of the Russian currency. “It is more likely depreciation of the ruble or stay within the range of 60-70, as oil is expected trading range of $ 40-50. Now the ruble is slightly undervalued, but don’t expect its steady drop below 60,” – says Kuptsikevich.