GBP rockets up 2.5% – Asian, LatAm central banks move to support currencies

Dollar Mostly Lower, Chinese Yuan, Asia/EMFX Soar; Aussie Up, Yields Steady

Summary

In another volatile session, the battered British Pound rocketed back up 2.5% against the US Dollar to 1.1105 (1.0790 yesterday). The Bank of England bought a total of GBP 1.415 billion British government bonds with maturities over 20-years to stabilise the gilt (UK bond) market.

Several Asian and Latin American Central Banks moved to prevent their currencies from further depreciation against the Greenback.

Following last week’s Bank of Japan intervention, the Bank of Korea, Bank of Taiwan, Bank of Indonesia, and the Reserve Bank of India likely sold Dollars to support their local currencies. Others hiked interest rates.

In Latin America, the Bank of Mexico and Colombian Central Bank hiked their key interest rates by 75 bp and 100 bp respectively. The USD/MXN pair tumbled to 20.1500 from 20.3500 yesterday.

The Dollar Index (DXY), which measures the value of the Greenback against a basket of 6 major currencies, slumped 0.56% to 1.1197 from 1.1350 yesterday.

The Euro (EUR/USD) rocketed higher by 1.03% to 0.9805 (0.9656 yesterday) in a classic case of short covering ahead of today’s month and quarter end.

Against the Offshore Chinese Yuan, the Greenback (USD/CNH) slid to 7.0980 after hitting an all-time high at 7.2167 yesterday. According to Reuters, China’s state banks were told to stock up for Yuan intervention.

The Australian Dollar steadied against the overall softer Greenback to 0.6497 from 0.6450 yesterday. New Zealand’s Kiwi (NZD/USD) found its wings and took off to 0.5725 from 0.5665.

Asian and Emerging Market Currencies gained versus the US Dollar. The USD/THB pair fell to 37.90 from 38.20 yesterday. The USD/INR (Dollar-Indian Rupee) fell to 81.45 from 81.75.

Wall Street stocks tumbled on more hawkish rhetoric from the Fed and other global central banks. The DOW lost 1.47% to 29,240 (29,378) while the S&P 500 plunged 1.93% to 3,645 (3,675).

The benchmark US 10-year bond yield steadied to 3.79% from 3.84% yesterday and 3.95% Monday.

Germany’s 10-year Bund rate was last at 2.17% (2.22%). UK 10-year Gilt yield closed at 4.13% (4.16%). Australia’s 10-year bond yield was last at 3.93% from 3.94% yesterday.

Data released yesterday saw UK Annual BRC Shop Price Index rise to 5.7% from 5.1%. Australia’s ANZ Business Confidence rose to -36.7 from a previous -47.8. Retail Sales beat estimates, rising to 0.6% against expectations of 0.4%.

Germany’s GFK Consumer Confidence Index in September fell to -42.5 from a previous -36.5. Credit Suisse Bank’s Economic Sentiment Index in September tumbled to -69.2 from -56.3.

US Pending Home Sales for August (m/m) fell to -2% from a previous -0.6%, missing estimates at -1.4%, on an annual basis (y/y) slumped to -24.2% from July’s -19.9%.

GBP/USD – The British Pound continued its roller coaster ride in choppy overnight trade.  After dipping to a low 1.0762 overnight from its opening of 1.0790, Sterling rocketed higher following the Bank of England’s move to purchase UK government Gilts (bonds). GBP/USD took off on steroids, hitting an overnight high at 1.1108 before settling at 1.1105.

(Source: Finlogix.com)

EUR/USD – The Euro also benefitted from short-covering in Sterling, soaring to finish in late New York at 0.9805 (0.9590 open). Overnight high traded for the shared currency was at 0.9809 in choppy trade. The overnight low reached was at 0.9636.

AUD/USD – The Australian Dollar grinded higher to finish at 0.6497 from yesterday’s open at 0.6450. Stronger Asian and EMFX following central bank intervention was supportive for the Aussie Battler. Overnight low traded was at 0.6436 while the overnight high was 0.6508.

USD/JPY – Against the Japanese Yen, the Dollar eased modestly to close at 144.46 (144.82). Overnight high traded was at 144.81 while the overnight low hit was 144.20. The 145.00 (USD/JPY) resistance level, considered by some as the BOJ’s line-in-the sand held firm.

On the lookout

Today sees a busy economic calendar with quite a few releases. Japan, Germany, the Eurozone, United Kingdom, and the US report on data that will be scrutinised. Currency traders will want to monitor today’s data, which could see more FX volatility.

Economic data releases kicked off earlier with New Zealand’s September Building Permits (m/m) which beat median expectations at -2.3% to -1.6%. New Zealand’s Consumer Confidence (September) was at 85.4, matching August’s 85.4, but lower than estimates at 86.0.

Japan follows with its August Unemployment Rate (f/c 2.5% from 2.6%) and Japanese August Retail Sales (m/m f/c 0.6% from 0.8%; y/y f/c 2.8% from 2.4% - ACY Finlogix).

Next is Japanese Preliminary August Industrial Production (m/m f/c 0.2% from 0.8%; y/y f/c -0.9% from -1.8%). This set of data bear watching because the expectations are far from median estimates.

Australia releases its August Private Sector Credit (m/m f/c 0.5% from 0.7%; y/y f/c 9.0% from 9.1%).

China follows with its September NBS Manufacturing PMI (f/c 49.6 from 49.4), September NBS Non-Manufacturing PMI (f/c 52.8 from 52.6), and China September Caixin PMI (f/c 49.5 from 49.5 – ACY Finlogix). Traders should monitor the Caixin PMI, which could move markets if results vary widely.

Japan releases its September Consumer Confidence (y/y f/c 34.5 from 32.5 – ACY Finlogix), Japanese August Housing Starts (y/y f/c -4.1% from -5.4%).

Germany kicks off European data with its August Retail Sales (m/m f/c -1 from 1.9%; y/y f/c -5.1% from -2.6% - ACY Finlogix). Another number where expectations are far from estimates.

The UK releases its Final Q2 GDP Growth Rate (q/q f/c -0.1% from 0.8%; y/y f/c 2.9% from 8.7% - ACY Finlogix), UK Current Account (f/c -GBP 43.8 billion from previous -51.7 billion – ACY Finlogix).

France releases its September Preliminary Inflation Rate (f/c 5.9% from 5.9% - ACY Finlogix) and French August PPI (y/y f/c 26.7% from 27.2%).

Switzerland releases its September KOF Leading Indicators (f/c 84.5 from 86.5 – ACY Finlogix).

Germany releases its September Unemployment Rate (f/c 5.5% from 5.5% - ACY Finlogix).

Italy releases its August Unemployment Rate 7.9% from 7.9% - ACY Finlogix).

The UK follows with its August Mortgage Approvals (f/c 62k from a previous 63.77k – ACY Finlogix).

UK BOE Consumer Credit for August (f/c GBP 1.4 billion from GBP 1.425 billion).

The Eurozone releases its September Flash CPI (m/m f/c 1% from 0.6%; y/y f/c 9.7% from 9.1%).

Next up is Eurozone August Unemployment Rate (f/c 6.6% from 6.6%). Watch these numbers too.

Finally, the US rounds up today’s busy calendar with its August Personal Spending (m/m f/c 0.2% from 0.1%) and US August Personal Income (m/m f/c 0.3% from 0.2%) – ACY Finlogix.

Markets will be watching for the release of the US Core PCE Index for August (m/m f/c 0.5% from 0.1%; y/y f/c 4.7% from 4.6%) which is the Fed’s preferred inflation gauge.

And US September Chicago PMI is forecast at 51.8 from 52.2 and US Michigan Final Consumer Sentiment for September (f/c 59.5 from 58.2 – ACY Finlogix). Whew.

Trading perspective

After the frenzied action in FX this week, markets will attempt to take a breather today. Central banks will be vigilantly monitoring currency movements as well. The Dollar weakened against most of its Rivals following its strong performance this week. Part of that easing in the Greenback was the result of other central banks trying to shore up their currencies with interest rate rises of their own or direct intervention.

Economic data releases today will also be closely monitored with the US Core PCE the highlight. The Federal Reserve’s preferred gauge of inflation is forecast to climb further. Anything less than the expected rises will put pressure on the overbought US currency.

FX traders should continue to monitor bond yields and their moves. In the past few weeks, yields have been trading like spot FX. The benchmark US 10-year treasury settled at 3.79% (3.84% yesterday). The resistance level at 4% should hold for now. A move below 3.80% could see more long Dollar liquidation against its rivals.

GBP/USD – The British Pound had a massive recovery (like the old days), climbing this week almost 4% from its low on Tuesday. Sterling (GBP/USD) closed at 1.1105 in New York from yesterday’s 1.0730. Overnight low traded was at 1.0762. For today, look for immediate resistance at 1.1120 followed by 1.1170 and 1.1220. Immediate support lies at 1.1070, 1.1020 and 1.0970. Look for Sterling to trade a likely range today of 1.0980-1.1130. Preference is to sell rallies toward 1.1250.

EUR/USD – The shared currency was also impressive, rallying overnight to 0.9805 from 0.9592 yesterday. The Euro traded to a low at 0.9636 overnight and 0.9569 on Tuesday. For today look for immediate support at 0.9760 and 0.9710. On the topside, immediate resistance lies at 0.9830, 0.9880 and 0.9930. Look for a likely range today between 0.9700 and 0.9850. The downside is still vulnerable, but being Friday, we could see further short covering first.

AUD/USD – The Aussie Battler recovered from strong selling interest to finish at 0.6497 from 0.6452 yesterday. Overnight high traded was at 0.6508. Look for immediate resistance at 0.6510 followed by 0.6550 and 0.6600 to cap any rallies. On the downside, immediate support lies at 0.6470, 0.6430 (overnight low traded 0.6436) and 0.6390. Look for more choppy trade today in a likely 0.6420-0.6520 range. Trade the range shag on this one today.

USD/JPY – Against the Japanese Yen, the Dollar eased to 144.45 from 144.82 yesterday. The Bank of Japan may have been capping the 145.00 resistance level earlier this week. For today look for immediate resistance at 144.80 (overnight high traded was 144.81) to cap with the 145.00/10 level next. On the downside, immediate support lies at 144.10 (overnight low traded was at 144.20). The next support level lies at 143.80. Expect a likely trading range today of 144.00-145.00.

A long but active week for FX. And its not over yet, but it’s Friday. Have a good trading day ahead  and a top, restful weekend all.