Daily Roundup – Markets review
Yesterday served up a salutary reminder of just how volatile Sterling is right now, with the currency swinging by well over a cent against both the Euro and US Dollar as the market anticipated – then digested – Mark Carney’s latest view on the UK economy. Yet again, the BoE chief was downbeat, talking up risk, but the subtext appeared to be a slightly more hawkish medium term view over interest rates, which proved sufficient to recover earlier losses. The whipsaw nature of the move however illustrates just how thin underlying liquidity has become in the currency and this is a theme that’s likely to be repeated over and over until there’s clarity on Brexit.
The Aussie dollar has bounced off recent lows, although this is looking more like a pause for breath and unless there’s a fundamental shift in the narrative from the central bank, then downside pressure could well prevail into next week. News that the final round of US-China trade talks involving Donald Trump won’t now take place until after the tariff deadline has passed will do nothing to engender investors to risk currencies such as the Aussie although word that the levy increase could be pushed back may be sufficient to salvage some support.
Short term economic data is thin on the ground so that could make for a relatively quiet end to the week. One recurrent theme is the gradual appreciation of the US dollar we’ve been seeing. DXY has risen by more than 1% this week, pushing the index close to highs for the year and providing an illustration of just how quickly risk appetite is diminishing. There’s a degree of irony that Donald Trump wanted to see a weaker US dollar to boost exports, but with global trade taking a turn for the worse, the greenback continues to find favour as investors look for a way to ride out the uncertainty. Clarity may provide a snap back here, but how long we have to wait for that remains to be seen.
EUR/USD is now in a well established down channel. Temporary support appears short lived and the sell-off could now continue towards the year to date lows just below 1.1300.