Pound plummets, BoE cuts; Yen soars, BoJ hikes; Fed holds steady

Stocks, yields slide; AUD tumbles, DXY rebounds; Friday – US payrolls

Summary:

The British Pound (GBP/USD) plummeted to 1.2735 (1.2835) after the Bank of England cut its Official Bank Rate by 25 bps to 5.0%. While the move was expected, markets saw the likelihood of more reductions for the rest of the year.

Earlier in the day, the Bank of Japan hiked its policy rate to 0.25% from 0.1%. The USD/JPY pair plummeted to 149.57 from 152.60. Also, Japan’s Annual Retail Sales grew 3.7%, widely beating forecasts at 3.3%, and 3.0% previously.  

The Dollar Index, (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies rebounded to 104.35 (104.05). The Fed held rates steady as was widely expected.

Data released yesterday saw US ISM Manufacturing contracted to 46.8 from 48.5, its deepest decline in eight months. US Claims for Unemployment Benefits climbed to 249K from 235K.

Fed Chair Jerome Powell said a rate cut in September could be on the table if inflation moves down in line with expectations. The benchmark US 10-year bond yield slid a whopping 18 basis points to 3.98%. Other global rates fell. The UK 10-year Gilt yield lost 16 bps to 3.88%.

The Australian Dollar (AUD/USD) tumbled to 0.6498 from 0.6538. China’s Caixin Manufacturing PMI plummeted to 49.8 from 51.8 previously, widely missing estimates at 51.4. It was the first decline in factory activity since October 2023, which weighed on the Aussie Battler.

The Euro (EUR/USD) fell to 1.0787 from 1.0813. The shared currency dropped below the 1.0800 support level against the broadly based stronger Greenback.

Against the Asian and Emerging Market, the US Dollar advanced. The USD/CNH pair (Dollar-Offshore Chinese Yuan) climbed to 7.2520 (7.2450) while USD/SGD (Dollar-Singapore) edged up to 1.3370 from 1.3350.

Wall Street stocks slid with the DOW settling 1.2% lower to 40,230. The S&P 500 fell 1.86% to 5,435. Rising risk aversion ahead of today’s US Payrolls report weighed on equities.

• GBP/USD – The British Pound slumped to 1.2735 from 1.2835 previously after the BOE trimmed interest rates. Overnight, Sterling rallied to a high at 1.2861 before falling to its New York close. The GBP/USD pair traded to an overnight low at 1.2727.
• USD/JPY – The Greenback plummeted against the Japanese currency to 149.57 in late New York from 152.60 previously. The Bank of Japan’s decision to hike its policy rate as well as a robust increase in Japanese Retail Sales lifted the Yen.
• AUD/USD – Slip-sliding away, the Aussie Battler tumbled just under the 0.65 cent level to 0.6498 against the broadly based stronger Greenback. The AUD/USD pair traded to an overnight low at 0.6488 before steadying. The overnight high traded was 0.6560.
• EUR/USD – The shared currency eased to 1.0787 from 1.0813 previously. Broad-based US Dollar strength weighed on the Euro which saw an overnight low at 1.0777. The overnight high traded for the EUR/USD pair was at 1.0835.

On the lookout:

Today’s economic data calendar is light and kicks off with Australia’s Quarterly Producer Price Index (q/q f/c 1.0% from 0.9% - ACY Finlogix), Australia June Home Loans (m/m f/c -1.0% from -2.0% previously – ACY Finlogix). Europe starts off with France’s June Industrial Production (m/m f/c 1% from -2.1% - ACY Finlogix), Italy follows with its July Retail Sales (m/m f/c 0.2% from 0.4% - ACY Finlogix). The US kicks off North America with its July Average Hourly Earnings (m/m f/c 0.3% from 0.3%; y/y f/c 3.7% from 3.9% - ACY Finlogix), US July Unemployment Rate (f/c 4.1% from 4.1% - ACY Finlogix), US Non-Farms Payrolls report (f/c 175K from 206K – ACY Finlogix). The US also releases its July Participation Rate (62.5% from 62.6% - ACY Finlogix) and June Factory Orders (m/m f/c -2.9% from -0.5%).

Trading perspective:

Welcome to Payrolls Friday! Following increased volatility in the FX markets following the interest rate decisions of 3 major central banks (BOJ, BOE, Fed), today sees the release of the US July Employment report. Jobs created by the American economy in July are forecast to fall to 175K from 206K previously. The Unemployment Rate is expected to hold steady at 4.1%. A Jobs Creation number less than 175K, say 160K or lower will see a large sell-off in the Dollar and possibly risk assets. Markets would have to see a Jobs Creation of 200K or more to propel the Greenback higher. Until then, expect consolidation in Asia and early Europe. Keep those tin helmets ready, and as Michael Buffer used to say ahead of a big boxing contest, “Let’s get ready to rumble.”

• USD/JPY – Expect more choppy trading in this currency pair as we end the week. On the day, look for immediate support at 149.20, 148.80 and 148.50 (overnight low traded was 148.51). On the topside, immediate resistance lies at 149.80, 150.10,150.40 and 150.80. Ahead of today’s US Payrolls report look for a likely range of 149.50-150.50. The plunge in the USD/JPY pair, while strong, is likely overextended. US yields would have to fall further to see a sustained move lower in this currency pair.
• GBP/USD – The British Pound plummeted against the Greenback after the Bank of England cut its Official Bank Rate by 25 bps to 5.0%. On the day, look for immediate support at 1.2705 (overnight low traded was 1.2727). The next support level lies at 1.2675. On the topside look for immediate resistance at 1.2770, 1.2810 and 1.2850. Heading into the US Payrolls report, expect Sterling to consolidate in a likely range today of 1.2700-1.2800.

• AUD/USD – The Aussie Battler tumbled to 0.6498 from 0.6538 previously. Immediate support for the Australian Dollar lies at 0.6480 followed by 0.6450. On the topside, look for immediate resistance at 0.6530 followed by 0.6560 and 0.6600. Ahead of the US NFP report, look for the Aussie to consolidate in likely range today of 0.6480-0.6580.
• EUR/USD – The shared currency finished at 1.0787 in New York, modestly lower from its close of 1.0813. Immediate support for the Euro can be found at 1.0750 followed by 1.0730 (overnight low traded was 1.0735). The next support level lies at 1.0700. On the topside, look for immediate resistance at 1.0805 followed by 1.0835. Look for the Euro to trade a likely range today of 1.0730-1.0780 heading into the US NFP report.

Happy Payrolls Friday and trading all. Have a top weekend ahead.