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  • richard evans

Currency markets struggling to find direction

Good morning

The US dollar had a bit of a move yesterday, looking strong initially but then reversing through the morning taking GBPUSD from 1.2330 up to 1.2445 and EURUSD from 1.0675 to 1.0745, the sell-off in part related to USDJPY selling on some talk of intervention in USDJPY. The US dollar has recovered against both GBP and EUR, they are now 1.2375 and 1.0680 respectively, but it has failed to recover against the Yen, with USDJPY down at 139.60.

GBPJPY has dropped as you’d expect, that’s now 172.70 having crept up to 174.25 at one stage yesterday morning, bout otherwise GBP remains strong, GBPEUR is up at 1.1580, GBPAUD approaching 1.9100 after a flurry of activity overnight following RBAs Lowe speech and Aussie CPI data, and GBPZAR up at a mighty 24.50. I’ve not seen any more talk of South Africa sending arms to Russia but I presume the investigation is still ongoing. BoEs Mann speaks this afternoon, she’s usually pretty hawkish so expect more of the same from her.

The US debt limit agreement has passed its first test, being passed by the House Committee, it now goes to the House for approval and assuming that gets through, it will head to the Senate for final approval. It is widely expected to pass, and would be something of a disaster for confidence in the US if it didn’t. Meanwhile Feds Mester said she saw no reason to pause rate rises unless there was high volatility or a US default. Odds seem to be moving more towards a rate rise in June despite the hints of a pause at the last meeting. US Jolts job data this afternoon could be interesting, as will the nonfarms on Friday. Otherwise, we hear from various Fed officials through the day which may give more inslight into their current thinking.

USDCNY fixed up at 7.0821 after some weak China PMI numbers, marking another new high in this cycle, plenty of headlines around US-China relations as US accuses China of various hack and espionage, while a Chinese military jet flew very close to a US surveillance aircraft in international airspace above the South China Sea. I seem to recall a similar incident late last year.

ECB officials still talk up the chances of further rate rises although I note that Spanish and French inflation numbers have missed estimates to the downside over the past couple of days. We do have German inflation numbers today and if these come out on the softer side EUR is going to find it tough to make any gains and is likely to lose further ground on USD and GBP, in the short term at least.

Have a splendid day, as I’d expect we got a healthy number of ‘out of office’ bouncebacks from yesterdays email from people who I presume are enjoying the holidays. Not quite as sunny here as I’d hoped but should still be up around the 20 degree mark and looks like it’ll stay that way into and beyond the weekend. Lovely.

- 09.00 EU financial stability review

- 13.00 German HICP

- 13.30 ECBs Lagarde speaks

- 13.30 CAD GDP

- 13.50 Feds Bowman speaks

- 14.15 BoEs Mann speaks

- 14.45 US Chicago PMI

- 15.00 US JOLTS jobs

- 18.30 Feds Jefferson speaks

- 19.00 Fed Beige book

- 02.45 China caixin manufacturing PMI


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