It’s been somewhat of an odd trading session for major currencies, with macro data seemingly playing second fiddle.
The US Dollar has treaded water on the whole. US government officials denied that US President Trump was considering imposing capital controls on US portfolio investments into China, which seemingly provided the Dollar with some support, before another weak set of ISM manufacturing PMI data put a break on any meaningful appreciation. The index of economic activity in the US manufacturing came in weaker than expected at 47.8 in September, its lowest level in over a decade. It was down for the sixth consecutive month – the first time such a sequence has been recorded in four years – and another marker pointing to a further slowdown in US GDP growth in Q3.
The GBP/USD cross had been broadly stable around 1.228 since yesterday and even inched a little higher following the release this morning of stronger-than-expected UK manufacturing PMI data. The index rose to 48.3 in September from 47.4 in August but about half of that increase was due a jump in inventories as UK-based companies built up stock ahead of the UK’s possible exit from the EU on 31st October. Moreover, the average manufacturing in PMI in Q3 of 47.9 was considerably weaker than the already
depressed 50.2 recorded in Q2, pointing to still very weak UK GDP growth in Q3.
In any case GBP/USD swiftly fell to near 1.22 in early afternoon trading before staging a mini comeback to 1.225, with Sterling seemingly once again beating to the Brexit tune. Prime Minister Johnson said he would announce in coming days formal measures which would circumvent the controversial Irish backstop but it remains unclear whether they will satisfy the EU and Irish policy-makers, let alone British members of parliament.
Conversely, the EUR/USD cross which earlier today had fallen to 1.089 – its weakest level since May 2017 – has bounced back to 1.094 despite Eurozone headline CPI-inflation falling to a lower-than-expected 0.9% yoy in September according to preliminary data. It is conceivable that at these depressed levels market participants have taken some profit on short Euro positions.
Finally, the Australian Dollar has shed nearly 0.5% since this morning’s RBA policy meeting. The Australian central bank cut its policy rate 25bp to 0.75%, as expected, but its statement fell short of saying that the policy rate had reached its terminal point for now and markets are pricing in a further 30bp of rate cuts.
