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  • richard evans

USD weakness didn't last long

Good morning

Well that bout of US dollar weakness didn’t last long. Pretty much twelve hours to be more precise. Before midday yesterday GBPUSD started to slip from its highs just above 1.1600 and fell all the way back to 1.1450 in the early hours of this morning. It has just managed to regain 1.1500 as I type but as I have said several times recently, I feel the risks remain firmly to the downside. EURUSD too traded down from its near-parity highs yesterday morning to reach 0.9865 by the afternoon, now sitting 0.9900 which brings GBPEUR to 1.1605.

USDJPY continues to push higher, trading up to 144.40 earlier, now 144.15. Those 1998 highs around 147.40 well in range now and while UD rates continue to push higher it is difficult to see yen finding strength any time soon. GDP data due tonight unlikely to impact markets much. USDJPY was down at 130.50 at the start of August, here we are a month later some 1400 pips higher. If anything shows USD strength, this is it.

Fed speakers later today are likely to continue with the ‘Fed must do more’ mantra which should keep USD supported and point to another 75bps rise later this month, although may be worth watching Mester for her thoughts on inflation having previously said she is looking for evidence of slowing inflation to slow the pace of rate rises.

Elsewhere in Asia, USDCNY fixed at its highest level for two years at 6.9170 although this was much lower than the market expected given USDCNY traded close to 7.000. Weaker than expected China trade data released overnight, although at a surplus of nearly $80billion its not exactly terrible. Talk that the Chengdu lockdown will be extended beyond its previous deadline of tomorrow.

BoEs Bailey and his colleagues appear at the Treasury Select Committee this morning where we look for any comment as to the pace of rate rises and also any mention of the level of GBP.

Truss has had her first day in office, we await details of her plan to combat high energy bills while FT reports Truss will not trigger Article 16, instead request an extension of any grace periods to give time for talks to restart. Seems reasonable enough. Truss holds her first cabinet meeting today, and it is also her first PMQ. I am sure I am not alone in thinking this could be highly cringe-worthy, let’s hope she performs better than she did in some of the clips doing the rounds on social media of previous speeches.

BoC rate announcement today, a 75bps rise is expected after the 100bps last time while they look to front load although I have seen a couple of banks looking for a smaller 50bps rise. With USDCAD up at 1.3200 perhaps those banks are not alone in their thinking.

Gold seems to have lost some its shine, having traded up above $1720 yesterday it is back below $1700. Regular readers will know I am watching a slowly rising trendline going back to April 2020, we did dip below that earlier this morning. We do still have this $1680 area that is probably more important than mine, either way the risks of further declines cannot be ignored.

A big calendar today and plenty of event risk so be on your guard. I continue to price downside GBPUSD trades for clients to guard against further moves lower, of course at these levels nothing looks particularly attractive, but we said that at 1.25, then 1.22, then 1.20, then 1.17 and so on.

- 10.00 BoEs Bailey speaks

- 10.00 EU GDP

- 13.30 US goods trade balance

- 13.30 CAD Intl trade

- 14.00 Feds Barkin speaks

- 15.00 Feds Mester speaks

- 15.00 BoC rate announcement

- 15.00 CAD Ivey PMI

- 15.35 Feds Brainard speaks

- 19.00 Fed beige book

- 00.50 Japan GDP

- 02.30 AUS trade balance

- 04.05 RBAs Lowe speaks

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