Currency Update – Friday 1st October

Currency Update – Friday 1st October

A turbulent day in currency markets yesterday saw some of the largest intra-day ranges we’ve seen in weeks, particularly involving the major Sterling crosses. The reasons for this were wide ranging, from data releases, comments from central banks, and large independent transactions as traders square-off quarter end positions. Against the Dollar, Sterling soared as high as 1.5925 after further speculation of additional QE by the Fed. A raft of surprisingly positive news from the US in the afternoon then caught the market by surprise and the trend was swiftly reversed. In particular, US GDP was revised up slightly in the third release, to growth at an annualised rate of 1.7% (the revision came via consumption growth). But more significant was the Chicago PMI index which rebounded to 60.4 in September, against expectations for a drop, with a rise in new orders pushing the index higher. Further, a good reading on initial jobless claims in the week to 25th September meant that the newsflow overall was positive. GBP/USD plummeted to a low of 1.5680 before stabilising in the low 1.57s overnight.

Against the Euro, after opening the day at 1.1650, GBP/EUR went as low as 1.1510 before rebounding. Earlier in the day markets took the latest (higher) estimate of Ireland’s bank bailouts and the downgrade to Spain largely in their stride – much of that news already having been anticipated. Even so, with fresh news about the extra funding required for the Irish banks , Anglo in particular , it seems slightly counter intuitive to see the Euro strengthen. However, sterling fell to a four-month low against the euro after an annual rebate to the UK from its European Union farming contribution was completed, investors covering short positions as a result. The flows pushed the euro to its strongest since late May, reversing selling pressure seen earlier in the day on anticipation that the payment to UK farmers would require euros to be converted into pounds. Such speculation had been slowing the euro's rise against sterling all week even as the single currency has been rallying on the back of broad dollar weakness (indeed, EUR/USD now has broken through 1.3700). A large institutional euro purchase further exacerbated the fall in Sterling.

Today, PMI indices have come in a touch higher than expected in the Eurozone, and a touch lower than expected in the UK.  The US has a plethora of data releases. Personal income and spending for August will help set the tone for consumer sending in the third quarter, whilst figures are also released for construction, manufacturing and auto sales.

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