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Currency Market Analysis

Sep 28, 2015 | Currency Market Analysis

Global Themes

The yen has gained by over 3.5 percent and 6 percent against the US dollar and sterling, respectively, over the past 30 days as risk aversion continues to largely drive trading activity. China on Thursday will release its latest manufacturing and services data; more signs of weakness on world’s No. 2 economy would increase safe haven buying of the yen and Swiss franc. The U.K. pound is trading close to five-month lows against the US dollar, having lost 5.2 cents over the past six trading sessions before US Payrolls Friday this week. Alongside several speeches from top Fed officials, payrolls Friday is one of a number of key USD trading points in the next five days. India is expected to slash interest rates for a fourth time this year in an announcement due tomorrow. The euro is just shy of its best levels since May 2007 against sterling before Wednesday’s high-impact euro zone inflation data and Thursday’s UK manufacturing PMI report.

JPY

The yen has appreciated by 3.5 percent against the US dollar over the past 30 days as worrying headlines from China continue to force more investors into safe haven currencies. Over the same period the yen has gained by 6.5 percent against sterling, moving quickly towards the key 180 level. Worried by the yen’s revival, overnight Bank of Japan (BOJ) Governor Haruhiko Kuroda said he expects a weaker yen. Mr. Kuroda has often attempted to talk down the yen to help boost Japanese exports, a key growth engine.

EUR

The euro starts this week just 0.7 percent away from its strongest levels since May 2007 against sterling, with the €1.40 levels now a distant memory. A key test for the euro will be Wednesday’s euro zone inflation data, with price gains expected to drop from 0.1 percent y/y to zero percent in September. A surprise negative number, meaning deflation, could hurt the Euro if markets anticipate a dovish European Central Bank (ECB) reaction. The Euro has benefitted in recent weeks as worrying global growth news and somewhat softer UK economic data suggest the BOE is nowhere close to raising rates.

GBP

The pound is trading close to five-month lows against the US dollar, having lost 5.2 cents over the past six trading sessions. Friday’s US GDP revisions were stronger than expected and the US dollar could continue to gain if high-impact US nonfarm payrolls (jobs) data this Friday beats forecasts. Sterling is also trading near five-month lows against the euro. While traders will be expecting a bounce higher this week, UK manufacturing data Thursday, if disappointing, could drive sterling lower as markets push back expectations of future UK rate hikes.

INR

The Indian rupee could be set for a sharp fall, with some analysts expecting India’s central bank to slash interest rates on Tuesday morning. A cut would make it the RBI’s fourth rate cut in 2015 as falling oil prices drive inflation and economic growth prospects lower. But in August the rupee actually rallied 1.5 percent in 3 days after the RBI surprisingly held off on cutting rates.


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