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  • richard evans

Currencies fairly quiet as we await US inflation, ECB later in the week

Good morning

Currencies were stable through yesterday and this was followed by an equally sensible Asian session. EURUSD now 1.0730, pretty much exactly where it was this time yesterday, GBPUSD is a tiny bit lower at 1.2500 which puts GBPEUR also a touch lower at 1.1650 but all in all nothing to get excited about. UK unemployment data this morning came out as expected, the unemployment rate just pushing up 0.1% to 4.3%. Any GBPUSD move was short-lived and the market now looks forward to GDP numbers released tomorrow morning.

USDJPY has pushed its way back up to 146.90, still some way from the pre-Ueda highs but does suggest the market isn’t fully behind the idea of Japan moving away from their negative rates any time soon. However forecasts are being brought forward, a couple of banks are looking for a move away from negative rates in Jan 2024, brought forward from Dec 2024 previously, and a tweak to the YCC a few months earlier than originally forecast, perhaps as early as October this year.

China and CNY is getting interesting. We already know PBoC have been setting the USDCNY fix considerably lower than market levels. Yesterday PBoC warned strongly against the market betting on one-way movement in CNY (ie depreciation). This is certainly not the first time they have done this, but around this time last year, just around Golden Week in early October, USDCNY and certainly USDCNH during Golden Week dipped lower. USDCNH actually moved from mid-7.20s to almost 7.0000. Add to this some talk of bearish technical signals and we could set up for a bit of CNY/CNH strength through late Sept/early Oct.

Meanwhile, Apple release their latest iPhone tomorrow, always a highly anticipated event but equally of interest this time around is whether China extend the recent ban on the use of iPhones. There is a lot going on in China at the moment, and outside China. I see a parliamentary researcher in the UK has been accused of being a spy although has not yet been named or charged.

A light calendar today, UK GDP numbers early tomorrow where a large monthly decline in the region of -0.5% is expected after a similarly large rise last month. Then US inflation numbers tomorrow afternoon. There is a growing feeling that Fed will keep rates on hold next week and that we will start to see rate cuts in 2024, a softer reading tomorrow is likely to cement these ideas although with fuel prices rising over the summer it is likely the headline will not be as soft as Fed would really like. US WTI was trading down around $67.50 in late June, it is now up around $87.50, UK Brent has seen similar gains rising from $72.50 to 90.75.

North Korea’s Kim Jong Un is in Russia to meet Putin where it is presumed they will discuss supplies of ammunition and weaponry for Russia’s invasion of Ukraine, more about quantity that quality I’d imagine. The West is of course warning North Korea against arming Russia but we know this will fall very much on deaf ears. I’m uncomfortable about the idea of Russia and North Korea getting together. It might show a bit of weakness that Russia has to ask for weapons but they won’t care as long as they end up with more bullets and missiles.

- 10.00 German ZEW

- 07.00 UK GDP

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