US action to control yields pushes US dollar lower

Good morning

I’m back in the office after a couple of very pleasant days meeting clients.  Seeing people from different backgrounds, different skill sets, different stages in their lives is one of the most enjoyable parts of this job.  What they all have in common though is they do trust that we are doing a good job in helping with their currency conversions and hedging.  We work hard behind the scenes to make sure their transactions are efficient and seamless, and that any hedge programs we manage for them remain appropriate and effective.

There is nothing better than hearing that the work we do removes a potential headache from the busy life of a modern finance director.  There are still some readers who have not yet signed up to be a client, every so often I remind you that you have nothing lose in having a conversation to see how we can put our expertise to work for you, helping with any aspect of your currency requirements.  Get in touch to find out more.

So, what have I missed over the last couple of days?  First, UK inflation numbers yesterday that came out pretty much in line with expectations, headline CPI was 2.9% compared to 2.6% the previous month, not a great surprise given the higher Ofgem price cap increase.  Core CPI, which excludes food and energy, came in at 2.6%, the same as last month, a mild disappointment given the markets was hoping for a small tick lower.  Overall, not the worst numbers but inflation is heading in the wrong direction for sure.

The bigger news for global markets is the US Treasury announcing an significant increase in the liquidity support buyback operations for bonds ranging from 10 to 30 year maturity.  Bessent seems to want to send a message on what he sees as unacceptable borrowing costs after 30 year yields hit their highest level since June 2007.  The announcement came as a surprise and sent the US dollar lower.  Hawkish FOMC minutes yesterday put a temporary stop to USD selling but this morning the weak dollar moves has extended further. with GBPUSD up to 1.3625 and EURUSD pushing higher reaching 1.1685 so far.  This puts GBPEUR right on support around 1.1650.  Yen took advantage of the weaker US dollar, USDJPY sold off from 159.20 to within a few pips of 158.00 although it has since recovered a little, now 158.40, leaving GBPJPY around the 216 area.

In other news, US/Canada trade talks seem to be going well although there is very little detail to confirm this really is the case.  USDCAD has headed toward three month lows, now 1.3785 with GBPCAD 1.8775.  Meanwhile disappointing Aussie employment numbers overnight sent AUD lower, with AUDNZD falling from the weeks highs near 1.2100 to 1.1950.  GBPAUD has been as low as 1.9020, now 1.9135.  Aussie PMI data due overnight could push AUD lower still if it fails to meet expectations.

We’ve had comment from Trump over Iran, he said he is introducing a crushing economic operation, economic warfare on an unprecedented scale.  He has called on allies to help overcome the Iran threat and has warned any country that supports Iran in any way to face what Trump calls ‘tremendous economic consequences’.  Military action has so far failed to bring a deal with Iran over both the Strait of Hormuz or Iran’s nuclear plans.  Whether economic action will have any effect remains to be seen, I thought Iran were already facing some pretty strict financial sanctions.  No surprise that oil prices are at August highs, Brent now $93 and WTI $85.50. 

Not the busiest day today in terms of economic data, but tonight brings NZ trade, Aussie PMIs and Japan inflation.  UK retail sales numbers will be out early tomorrow morning.

Have a great day…

-  13.30 US philly fed survey

-  16.10 Feds Musalem speaks

-  20.30 ECBs Sleijpen speaks

-  23.45 NZ trade balance

-  00.00 AUS S&P services. Manufacturing PMI

-  00.01 UK GfK consumer confidence

-  00.30 Japan CPI

-  07.00 UK retail sales