'Start of Brexit formal negotiations to hit Pound, GBPUSD might move below 1.20' - Hussein Sayed, FXTM

HUSSEIN AL-SAYED
PROFILE
• Current Job: Chief Market Strategist at ForexTime (FXTM)
• Career: Spent many years working in the finance sector as a dealer, trader and analyst in equities, credit and foreign exchange markets. As a highly experienced financial analyst with an in-depth understanding of the GCC region, Hussein provides valuable insight into the latest local and international market news and macroeconomic trends..

View profile at FXStreet

Hussein Sayed is the Chief Market Strategist for the Gulf and Middle East region at FXTM, and host of the popular evening business show on CNBC Arabia, Bursat Al Alam. As an ambassador for the FXTM brand, he represents the face and voice of FXTM within the MENA and GCC region, and is frequently quoted in leading media outlets such as Forbes Middle East, AFP, The Telegraph and MarketWatch. Through his role as business news anchor for CNBC Arabia, he covers the most important business and market news which provide insight to traders that could assist them in their investment decisions.

How credible is the Fed plan to do three rate hikes this year after failing to do so last year?

As we can clearly see, markets are not buying the Fed’s plan for three rate hikes in 2017.  June is the only meeting with more than 50% probability for the first rate hike in 2017, and if the markets were correct this leaves the Fed with only four meetings to add two additional rate hikes, suggesting that monetary tightening will be aggressive and not gradual as previously mentioned by Fed officials.

Given the current growth and inflation trajectories, two rate hikes will likely be appropriate. However, Fed officials, like investors, are in wait-and-see mode to see what fiscal policies will get through the congress, and whether Trump’s immigration and trade policies will push inflation and wage growth aggressively. With all these unknow variables it's going to be a difficult task to predict the pace of tightening and the Fed doesn't want to fall behind the curve. That's why I believe the pace of rate increases may vary from two to four hikes in 2017.

Is the USD reacting completely to Trump’s moves, or is there anything else behind the greenback’s recent moves?

From November 9 until January 3 the dollar appreciated by 5.7% against a basket of currencies. I believe this move was attributed to Trump's expected policies, so called "reflation trade" which led to widening yield spreads between the U.S. bonds and the rest of the fixed income markets. Since then the dollar has been in a down trend, after several officials from the U.S. administration including the President himself, commented that the dollar is too strong and blamed other countries for devaluing their currencies. So it's obviously Trump's actions moving the USD as of now, and I think this will remain the case in the near future.

What kind of reaction do you expect from the GBP after Article 50 is triggered?

I think the pound’s reaction to triggering article 50 will be muted, probably a slight dip lower, as it won't be a surprise to the markets. However, the beginning of the formal negotiations could hit Sterling badly especially if the EU took a hard stance "which is most probably the base scenario". GBPUSD will potentially move below 1.20, but what is of more importance to traders is the high volatility attributed to this move, and a fall towards 1.15 should be seen as a buying opportunity for investors and long term traders.

Are we about to enter into another wave of risk-off trading with bids to safe-haven assets as Gold or the JPY?

There is a high chance for another wave of risk-off mode in the next couple of month. Trump's proposed international trade policies, currency wars, and elections across Europe featuring far right candidates  are sufficient to trigger a selloff in equities. Thus, I suggest investors to overweight Gold in their portfolios. Even if we didn't see a strong selloff, I believe low real interest rates are likely keep Gold supported. As for the Yen, I think it will be more volatile as BoJ will try all the tools to keep the currency weak.

What is your outlook on the Oil price for the first semester of this year? Will the OPEC cut production deal be respected by all stakeholders?

January has proved that OPEC is taking its promised cuts seriously with compliance higher than 80% led by Saudi Arabia, very few industry analysts expected high compliance and if this continues in the next couple of months we expect the markets to tighten further, keeping oil prices within the $50 - $60 range in the first half of 2017. However, the risk is likely to come from the U.S. and if the IEA report on February 10 shows that the shale industry is coming back at a faster pace, this could keep oil prices at the lower end of the range.