The most active markets in the Middle East through Q4 have been Gold, USDJPY and GBPUSD. November’s Diwali festival saw Gold buying drop by more than one-third from 2012, according to retail dealers, as a result of the lack of supply caused by the Indian Government’s anti-Gold import rules. However, the continued downtrend in Gold has provided opportunities for the natural buying interest in the Middle East region. Further buying of Gold is expected into the New Year off the back of November’s 5.5 per cent drop in value – the worst single month performance since 1978.
The strength of the USD versus the yen has generated a lot of interest particularly with the move back through the 100.00 level. But it is GBPUSD that has been most active with client trading volumes currently three times that of USDJPY and almost twice as much as Gold. In August, GBPUSD moved above its 40 week moving average price at 1.5300. Since 2005 breaks of this average have been closely correlated with every bull rally and bear market sell-off. Augusts break signalled a new bull market in GBPUSD with the majority of regional investor’s backing the continued improvement of the UK economy and buying into the currency. The on-going positive economic data has continued to support bullish sentiment in sterling with investor’s liking the economic data linked to the UK recovery. This view has been further supported by the European Commission who raised their growth forecast for next year to 2.4 per cent making the UK the strongest economy in Europe with over twice the forecast growth of the Eurozone, which is only predicted to grow at 1.1 per cent.
There is still strong interest in sterling from investors, even with the currency increasing significantly at the end of 2013. The expectation is the rally can be further supported into 2014 especially if the US dollar weakens. Many regional commentators are unsure of what will happen when Janet Yellen takes over the running of the US Federal Reserve (Fed) in January. She is seen as a dove, even more so than Bernanke. Instead of introducing tapering there is a view that she could potentially raise QE to stimulate the economy further and push long term interest rates lower.
The reasoning behind raising QE is that any tapering would almost certainly lead to a stall in the current US economic recovery. The Fed and the Government do not want this and will take all steps to make sure it does not happen. If QE is continued this would put further pressure on the USD in Q1 2014 and maintain the GPBUSD rally to 1.7000 and above.
The move by London to start clearing the RMB is being closely watched. With the Shanghai FTZ and Singapore also announcing they will become off-shore centres for the renminbi there is a lot of interest in the currency. Regional investors see it as a safe haven which, as it is slowly liberalised, will strengthen against the dollar, so they are looking to include it in their portfolios.