Simon Smith

EUR breaking lower

Having been moribund for the past few session, the euro has broke lower this morning, below 1.35 and through the previous low of the month at 1.3491.  This has happened ahead of the US CPI data due later today. As we pointed out in the daily today, EURUSD is increasingly being driven by US rate expectations as the ECB's hands are seen as being tied by the fact that most policy option have been exhausted. There are no particular catalysts being cited for this latest move, but it is perhaps ...

Simon Smith

Volatility split

We're again witnessing a divergence in volatility between FX and other markets as events in the Ukraine take on a new dimension.  On equities, the VIX (measure of expected future volatility) has spiked to 3 month highs. A similar measure for FX (CVIX from DB) has declined to new lows for the year. Why is FX so sanguine about it all? Three reasons. Firstly, in case you had not noticed, the old "risk on, risk off" dynamics are a thing of the past, having been ditched well over a year ago. ...

Simon Smith

Dollar weakness on Yellen

The dollar has fallen on the initial comments from Fed Chair Yellen during her semi-annual testimony in Washington today.  Her opening statement stressed that slack remained in the labour market and again emphasised that "a high degree  of monetary policy accommodation remains appropriate".  That said, the dollar remains above the levels seen just ahead of the last employment report, by just under 0.4% on the dollar index.

Simon Smith

CAD reversal

The CAD has reversed on the back of weaker employment data. USDCAD has pushed up to 1.0690, 50 pips higher vs. levels ahead of the release. Data showed the unemployment rate rising to 7.1%, with move away from the year lows at 1.0621 made earlier in the month. Over the past 4 weeks, CAD has been one of the stronger performers, helped by higher inflation data released last month.

Simon Smith

GBP knocked lower by production data

Sterling having to deal with some worse than expected production numbers, which showed the headline rate falling 0.7% in May.  The currency had so far managed to outperform the dollar during July, despite the strong run seen in June, so in some ways this correction lower was a long time coming. We are seeing cable around 50 pips lower to 1.7090, EURGBP at 0.7955.

Simon Smith

Euro weaker on Draghi

The single currency has been pushed lower on the back of comments from ECB President Draghi. At his monthly post-meeting press conference, he has stated that economic risks remain to the downside, that rates will be at current level for "extended period" (this has been a pledge for a year now) and also that preparatory work related to ABS purchases continues.   EUR down to 1.3615, but given push lower from stronger US jobs data, the overall impact from Draghi's comments has been small.

Note ...

Simon Smith

Sterling popping higher

Sterling up to 1.7130 after stronger than expected manufacturing PMI data, headline readign up to 57.5, from 57.0. Market was expected small fall.  EURGBP down to 0.7987, so sterling managing to outperform what is an already firm euro.

Simon Smith

Dollar suffering into month end

We mentioned in the daily the risk of some more choppy trading into month-end, which is proving to be the case. Both sterling and the Aussie are fairly buoyant, with cable above the 1.71 level and also the euro up to near 1.37.   It's not wise to attach too much significance to these moves, but it's notable that we are seeing dollar weakness into the end of the half year that had so much hope for dollar strength.

Simon Smith

Bank of England bares teeth

Leaving aside Suarez references for now, the Bank of England has today taken the opportunity to bare its teeth in the new power given to it under the guise of the Financial Policy Committee (FPC). Previously, the Bank monitored financial stability and conditions, but did not have the power to take action. That changed post-financial crisis, with the FPC given macro-prudential tools to tackle perceived financial excesses or potential issues.

The measures announced today are seen as insuring ...

Simon Smith

Sterling waiting for FPC

Sterling just below the 1.70 level on cable ahead of announcement by the Financial Policy Committee.   There is expectation that they will announce some measures to take the heat out of the housing market. Any measures on this front could well curtail further sterling strength on the basis that they will make an interest rate before the year end less likely, but this may not be sustained given that Carney has previously stressed that such measures were not a substitute for higher rates (Mansion ...

Simon Smith

Dollar holding weaker tone post-GDP

The dollar has remained on the backfoot after the weaker US GDP data seen earlier today, with the Q1 reading revised down further to -2.9% on an annualised basis.  Data on durable goods was also weaker.  The numbers did allow cable to touch the 1.70 level again, but profit-taking was seen into the close.  This fits with the price action seen yesterday, which was more prone to profit-taking, even though interest rate markets were not really impacted by Carney's comments earlier in the day. ...

Simon Smith

Dollar steady for now after Fed

No great surprises from the Fed statement and minutes.  Growth forecasts lower, inflation forecast for this year nudged up slightly. No members see rates higher this year, most see move next year and projections have been nudged higher. All pretty much as expected though with dollar  marginally firmer on the news.

Simon Smith

Sterling choppy after minutes

The BoE minutes to the June meeting were widely anticipated in the wake of the speech by BoE Governor Carney last week.  Although we saw the vote for steady rates at 9-0, the minutes did reflect the fact that the committee were surprised by the low probability attached to a 2014 rate rise. This has naturally changed on the back of Carney's comments of last week and even an interview by one of the more dovish members (David Miles) reflected on this point yesterday. As such, after the initial ...

Angus Campbell

The BOE’s dilemma

UK CPI has been released lower than expected at 1.5% Y on Y and sterling is softening on the back of the data.  Whilst it's not a major move or reversal of sterling's uptrend it reminds us all the the Bank of England faces a small problem in that its most recent hawkish rhetoric (well, at least less dovish) comes at a time of below target inflation.  It's hard to justify raising rates when inflation remains stuck below target.  Tomorrow will however be a more significant risk event as we'll see ...

Simon Smith

New sterling paradigm

Sterling softening a little after the overnight gains on the back of comments from the BoE Governor suggesting that rates may rise as early as this year, in his words "it could happen sooner than markets currently expect". The key upside level on cable is 1.7043, the high seen in August 2009 when the dollar was crushed by the onslaught of the Fed's QE program. I've for some time expected that a UK rate hike could come this year, based on a number of factors.  This is being felt also on EURGBP, ...

Simon Smith

GBP and JPY gains

We are seeing sterling and the yen gaining during the morning session. Sterling is seeing follow-through from the earlier buying seen after the data. The yen is gaining as a more risk averse tone sets into markets, such as equities, with bond yields also higher. The recent gains and continued low volatility give a vulnerable air to many markets, but as always it’s a matter of timing with regards if or when corrective activity is seen.