GBP steady post Queen Elizabeth II death – ECB hikes, EUR flat

Summary

Britain’s devoted and long-reigning monarch, Queen Elizabeth II died peacefully at the age of 96 at Balmoral, serving the UK for seventy years. The British Pound (GBP/USD) steadied to 1.1500 in late New York from 1.1520 yesterday. Sterling was modestly lower against the other major currencies.

The Euro finished little-changed against the US Dollar at 0.9997 (0.9995 yesterday) after the European Central Bank raised its Main Refinancing Rate by 75 bp to 3.25%. The ECB also revised its inflation projects upward.

The Dollar Index (DXY) which measures the value of the Greenback against a basket of 6 major currencies, dipped to 109.66 from 109.72 yesterday.

Federal Reserve President Jerome Powell said that inflation expectations remain well anchored and that he would maintain a strong stance to keep it that way.

Despite several warnings from Japanese officials in the Bank of Japan and Ministry of Finance on the Yen’s weakness, the USD/JPY pair was little changed, settling at 144.10 (144.20 yesterday). Masato Kanda, vice minister for international affairs told reporters that “the Yen’s recent moves cannot be justified by fundamentals.”

Against the other major and Emerging Market and Asian currencies, the US Dollar was mixed. The Australian Dollar (AUD/USD) was last at 0.6750 (0.6754 yesterday) while the Kiwi (NZD/USD) finished at 0.6057 from 0.6061.

The US Dollar eased against the Offshore Chinese Yuan (USD/CNH) to 6.9620 from 6.9645. The USD/THB pair dipped to 36.48 from 36.53 yesterday. USD/SGD closed at 1.4047 (1.4052).

Bond yields rose. The benchmark US 10-year treasury rate closed at 3.32% (3.27% yesterday). Germany’s 10-year Bund yield jumped to 1.71% from 1.57%. The UK 10-year Gilt yield was last at 3.14% (3.03%). Japan’s 10-year JGB yield finished at 0.24% (0.23%).

Wall Street stocks rose modestly. The DOW settled at 31,792 (31,547) while the S&P 500 was last at 4,009 (3,977).

Economic data released yesterday saw Japan’s Final Q2 GDP climb to 0.9% from a previous 0.5%, beating estimates at 0.7%.

Australia’s Trade Surplus slumped to AUD 8.73 billion from a previously downward adjusted AUD 17.13 billion (AUD 17.67 billion), lower than expectations at AUD 14.55 billion.

Japan’s Economy Watchers Sentiment rose to 45.5 from 43.8, and higher than forecasts at 45.0.

Switzerland’s August Unemployment Rate (m/m) eased to 2.1% from a previous 2.2%.

US Weekly Unemployment Claims eased to 222,000 from 228,000 beating forecasts at 240,000.

EUR/USD – The Euro finished flat at 0.9997 (0.9995) after the European Central Bank raised its Main Refinancing Rate by 75 bp. The move was widely anticipated by financial markets. Overnight, the Euro traded to a high at 1.0030 while the overnight low recorded was at 0.9930. ECB President Christine Lagarde flagged more rate increases ahead.

USD/JPY – Once again it was the Japanese Yen which led currency volatility after trading to 24-year lows against the Greenback on Wednesday. Overnight, the USD/JPY rose to a high at 144.56. Overnight low traded was at 143.31. As expected, Japanese officials (Japan Inc) issued several verbal warnings against elevated Yen weakness. USD/JPY settled at 144.10.

GBP/USD – Sterling steadied to 1.1500 (1.1520 yesterday) following the news of Queen Elizabeth II’s death. In volatile trade, the British currency was pounded to an overnight low at 1.1460. Overnight high recorded was at 1.1561. New British Prime Minister Liz Trust announced her energy plans which were taken well by the public.

AUD/USD – The Australian Dollar was steady after sideways trading, finishing little changed at 0.6750 from 0.6754 yesterday. Overnight, the Aussie traded to a high at 0.6765 while the overnight low recorded was at 0.6713. Aussie traders will be watching today’s release of Chinese inflation data (CPI and PPI).

On the lookout

As we end the week, today’s data calendar is light. New Zealand kicked off earlier with its NZ Electronic Retail Card Spending for August (m/m 0.9% against a previous -0.2%; y/y rose to 26.9% from a previous -0.5% - ACY Finlogix).

China follows next with its August CPI (m/m f/c 0.2% from 0.5%; y/y f/c 2.8% from 2.7% - ACY Finlogix), Chinese August PPI (y/y f/c 3.1% from 4.2% - ACY Finlogix).

France releases its July Industrial Production (m/m f/c -0.5% from a previous 1.4% - ACY Finlogix).

The Euro Area Eurogroup Meeting starts today in Prague.

Canada releases its Capacity Utilization (no forecasts, the previous was 82%), Canadian August Employment Change (f/c 15,000 from -30,600 – ACY Finlogix), Canada’s August Unemployment Rate (f/c 5% from 4.9%).

The US rounds up today’s data releases with its July Wholesale Inventories (f/c 0.8% from 1.9% - ACY Finlogix). US Fed FOMC Members George and Waller are speaking at different virtual events.

China releases its August Vehicle Sales (Saturday) – no f/c, previous was 29.7%.

Trading perspective

The Dollar finished mixed overnight but with its underlying bid intact. Ahead of next week’s (Tuesday) US CPI and PPI (Wednesday) expect more of the same. The risk though is an unwinding of speculative long Dollar bets.

As expected, Japan Inc have already begun their verbal rhetoric against further rapid Yen declines. It has been more than a decade (1998 Asian Currency crisis) since the Bank of Japan intervened in the FX markets to support the Yen. In 2011, the BOJ intervened, but that was to weaken the Yen, following the Fukushima nuclear plant disaster.

This writer was still trading currencies at the Commonwealth Bank and on the early shift when the BOJ entered the FX markets. There seems to be more coordination now between the Ministry of Finance and the Bank of Japan on the currency.

While other global central banks have been hiking rates to tackle inflation, the Bank of Japan has repeatedly committed to keep rates low. This will keep downside pressure on the Japanese currency.

The USD/JPY pair will be closely monitored today and in the coming days. It should set the tone for the Greenback against its other Rivals.

USD/JPY – The Dollar had a choppy trading session against the Yen, hitting an overnight high at 144.56 before easing to its New York close at 144.10. Overnight low traded was at 143.30. For today, look for immediate resistance at 144.40, 144.70 and 145.00. On the downside look for immediate support at 143.80, 143.50 and 143.20. Expect another volatile day in this currency pair and keep your eyes focussed on any further comments from Japan Inc. Likely trading range today, 142.80-144.30. Risk may be lower first. Sell USD rallies.

EUR/USD – Following the ECB’s decision to hike rates by 75 bp, the Euro finished little changed against the US Dollar at 0.9997 (0.9995 yesterday). For today, look for immediate resistance at 1.0030 followed by 1.0060 and 1.0100. Immediate support can be found at 0.9960, 0.9930 and 0.9900. Likely range today, 0.9930-1.0030. Trade the range.

GBP/USD – The British currency eased modestly against the US Dollar and other rivals following the news that long-reigning Queen Elizabeth had passed away. Sterling finished at 1.1500. Immediate support lies at 1.1470 followed by 1.1440 and 1.1410. Immediate resistance is found at 1.1530, 1.1560 and 1.1590. Look for another choppy session in this currency pair. With a new government, the risk is for a modest decline. Likely range, 1.1440-1.1540. Prefer to sell rallies.

(Source: Finlogix.com)

AUD/USD – The Aussie was sidelined with most of the focus on Europe, finishing in New York at 0.6750 (0.6754 yesterday). Overnight, the AUD/USD pair traded to high at 0.6765. The overnight low traded was at 0.6713. For today, look for immediate resistance at 0.6790 and 0.6820. Immediate support can be found at 0.6720, 0.6690 and 0.6660. Look for consolidation in the Aussie, likely range 0.6700-0.6800. Trade the range shag on this one.

Having traded in the New York time zone, it would be interesting to be there today as markets finish on a Friday afternoon.

Keep those tin helmets close by, we are in for another roller coaster ride in FX land. Happy Friday all.