Pillole giornaliere

US retail sales data at 13:30 today will be an important release but it’s currently everything outside of the US which is causing currency volatility. It’s unconfirmed but China appears to be intervening to weaken its Renminbi more quickly ahead of next week’s US interest rate decision. Overnight the CNY broke through keys levels to its worst rate since 2011 against the US dollar. Following the shock devaluation back in August, China’s interventions are continuing to cause FX market instability.

Yesterday the Euro fell by 0.7 percent against the US dollar but the small correction is only a small dent in the Euro’s mammoth 4.5 percent rally since December 03. The Swiss National Bank (SNB) went with verbal intervention instead of interest rate cuts yesterday to try and weaken the Franc. In two days the South African Rand has lost about 6 percent against Sterling, hitting a record low after the country’s Finance Minister was unexpectedly fired.

Traders backing a Sterling rally were left confused yesterday by a more dovish Bank of England (BOE) announcement which saw the UK currency fall. The BOE yesterday signalled that the recent oil price drop was a concern, halting the Pound’s run to three-week highs against the US dollar and pegging the GBP/EUR rate well below €1.4000. Oil’s plunge is expected to see Russia slash interest rates this morning.

CNY

China effectively pegged its Renminbi to the US dollar in 1994 to grow its export market, especially to the US. But US dollar strength in 2015 is proving to be a major drag on China and they are reacting ahead of next week’s pobable US interest rate hike. Overnight the CNY broke through keys levels to its worst rate since 2011 against the US dollar. Volatility in the GBP/CNY rate over the past three days resembles the kind of swings witnessed during China’s major devaluation on August 11.

USD

Year-end profit taking and position squaring is weakening the US dollar while uncertainty remains high about how the December 16th US rate decision will play out in currency markets. Poor liquidity conditions could amplify any FX moves triggered by Fed Chair Janet Yellen on Wednesday night. The US dollar index which tracks dollar strength against a basket of currencies is trading close to one-month lows. However, this is only 3 percent below the 2003 peak the currency hit on December 02.

GBP

The BOE kept its bank rate at a record low 0.5 percent as expected yesterday and the meeting minutes suggested that a future interest rate rise may still be some time away. Some economists are predicting no rate rise for another year with Britain’s EU Referendum also looming. The Pound/US dollar exchange rate is still trading about 1.5 percent above a seven-month low around the $1.50-$1.48 price range.

CHF

The Franc gained on Thursday touching its strongest point in three weeks against the Euro after the Swiss National Bank took no new measures to weaken its currency against the Euro. The SNB went with verbal intervention instead of interest rate cuts yesterday to try and weaken the Franc. The SNB kept its -0.75 percent bank deposit rate unchanged but still warned that the Franc was significantly overvalued and will weaken over time.