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Commodities slip on China revolt

Currencies of countries that export large amounts of commodities are sliding, probably in response to the attempts at lockdown in China and the subsequent resistance by Chinese citizens. Demonstrations against the Covid restrictions are happening in Beijing and Shanghai on a scale not seen since Tiananmen Square in 1989. Thankfully, the crackdown by the authorities has not, thus far, been as brutal as it was in 1989. Nonetheless, the repercussions for China’s global trade and global demand are obvious and commodity prices have slipped as a result. Hence, the GBPAUD rate is up above AUD 1.80 again, GBPNZD is trying to break above NZD 1.9450 again and GBPCAD is up to CAD 1.6225, the highest it has been since April. It isn’t all about China though, Australian retail sales dropped 0.2% in October, way below the market expectation of a 0.5% gain. It must be noted though that Thursday and Friday were very thinly traded due to the US holidays. We ought to see a little more vigour in the markets this afternoon when the largest forex market (the UK) crosses over with the 2nd largest (The USA) for the first time in 5 days.

Sterling held up well in thin markets

Sterling held up well in the last days of last week; certainly much better than England’s scrum did against the Springboks on Saturday but let’s not talk about that. In the interbank market, the pound will buy USD 1.2075 this morning and EUR 1.1630. These are healthy levels of strength for the pound after weeks of abject limpness. Unfortunately, for sterling sellers, we have very little news to support the pound this week. we have a speech from the governor of the Bank of England tomorrow which is ominous because Andrew Bailey is the latest in a long line of BOE Governors, who appear to have a mandate to weaken the pound at every opportunity. So, between now and 3:00 PM tomorrow, we may be looking at a window of opportunity in which to sell sterling for other currencies. Of course, Governor Bailey could break with tradition but I wouldn’t put money on it.

US traders back to await US GDP and payrolls

Having had a four-day weekend break, for the most part, US traders will return to their desks this afternoon to discover a slightly weaker US dollar. Then they had three working days before the month end, which will culminate with the release of US economic growth data for the third quarter of the year and speech by the Chairman of the US Federal Reserve. So, I think it is safe to say, Wednesday will be a volatile day for the US dollar and that volatility is likely to extend until Friday when we will receive the US Employment Report. We are expecting the non-farm payroll report will show a slow down in job creation, which ought to colour the Federal Reserve’s thinking with regard to their rampant interest rate hiking cycle. The USD starts the week at $1.2075 against the pound and $1.0420 against the euro. Don’t be surprised if we see USD strength though if the situation in China gets worse. Safe haven buyers can shift the USD very quickly.

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