Oil Prices Decline Sharply as Gold and Silver Rise

22 June, 2017

Over the last 24 hours, most of the volatility has been in GBP and oil. Oil surged late in the US day as a result of the fall in inventories and the comments from Iran that OPEC members were planning to cut back production even further. However, these comments proved wrong as they reversed instead and plunged after another OPEC member said the group wouldn’t agree to any further cuts, unless Iran agrees to participate- something that no one believes will happen.

In addition, bear in mind that CAD had a sharp fall along with oil and AUD and the connection between oil and CAD has recently loosened a bit, but not enough to cause any damage. Even though tropical storm Cindy may cut 17% of oil production especially near the Gulf of Mexico and it could be a short-term bounce in the price due to that natural cause, oil will still remain bearish on longer term.

Sterling gained after Bank of England Chief Economist Andy Haldane stated that there are rising risks if they don’t tight policies on time and had considered voting to raise rates this month. However, the MPC argued that it was too early and this means that we can expect more volatility on GBP as the debate for rates continues, even though the Brexit uncertainty will be the most important theme affecting, the GBP in a negative way.

It seems that NZD was higher than expected after the RBNZ (Reserve Bank of New Zealand) kept their rates unchanged and this proves that an improvement in the terms of trade justifies a stronger currency.

Today, EU leaders will have a meeting for their usual June summit in Brussels. It is expected that they are going to receive updates regarding Brexit negotiations from Michel Barnier, the chief EU negotiator. In addition, Prime Minister May will set out the principles of the government’s negotiating position on the future rights of EU citizens living in the UK. As it is expected, her position will most probably differ from other EU leaders’ positions, raising some fears about how the market will react and how GBP will be affected due to these changes.

EU consumer confidence is predicted to have a further rise as the economy slowly improves and all the previous political concerns that worried the press start to dissolve.

Weak confidence in France, which is also the EU’s second largest economy, is expected to improve after the recent election results, too.

On a final note, Federal Governor Jerome Powell’s speech at the Senate Banking Committee will be closely examined as Powell isn’t a frequent speaker. He recently stated that he didn’t recall any signs of the economy overheating and therefore, the Fed needs to keep their commission to the symmetrical 2% inflation target instead to prevent inflation from falling too far from the target or even going above.

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