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  • richard evans

USD continues to climb

Good morning

We start September with a stronger US dollar. Every Fed official who speaks seems to offer the same message, that the Fed still has a long way to go in its battle against inflation and rates will be higher for longer.

GBPUSD traded down to 1.1570 overnight, while USDJPY reached 139.65. The move in USDJPY led a Japanese financial official to comment that sudden FX moves are undesirable and thy are watching FX with a sense of urgency. Back in mid-July there was talk that 140 would be a line in the sand for Japanese authorities, we may get a chance to see if this is correct. Have to hand it to Sakakibura, ex-Japan finance minister who back in May said USDJPY could hit 140-150 by year-end. It was 128 or so when he spoke, I hope he had some PA trades on.

GBP is struggling not only against USD but also against EUR, with GBPEUR trading down to 1.1545 overnight. It has made a slight recovery, GBPUSD and GBPEUR now 1.1610 and 1.1580 respectively but the outlook does not look bright and 1.1000 in GBPUSD is certainly a level we need to consider.

EURUSD though has been holding above parity, as I mentioned yesterday the prospect of a 50bps, even a 75bps rate rise from ECB next week seems to be enough to support the single currency. It traded down to 1.1010 overnight, now at 1.0025 so a fairly tight range in the early hours of the morning.

Gold is another to suffer against a strong USD. It traded to 1702.50 overnight, now at 1706 so hardly a recovery. My key trendline support is now almost at 1693, I’m watching that area closely, while others have their eyes on 1680, an area that has held since around mid-2020.

I mentioned China yesterday and a lockdown in the Beijing area. Now I hear 21 million people in the city of Chengdu will be locked down with mass testing taking place over the next few days. These lockdowns, combined with some weaker than expected manufacturing data and stronger USD, has seen CNY weaken, USDCNY fix this morning came in at 6.8821.

I’ll be sending the results of our currency purchase programs out in the next day or two. With GBPUSD falling it is no surprise that our USD purchase program still offers participants the chance to buy dollars well above current spot levels. While the same could be said for anyone with similar forward positions, the key difference for us is that we do not mind buying dollars down at these levels in the program, as we are comfortable that our initial rates will improve if spot were to ever make a serious recovery. This makes life much more comfortable than entering a load of forward contracts at current levels.

- 09.30 UK S&P manufacturing PMI

- 10.00 EU unemployment rate

- 13.30 US initial jobless claims

- 14.30 CAD S&P manufacturing PMI

- 14.45 US S&P manufacturing PMI

- 15.00 US manufacturing ISM

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