Solid improvements in Japan’s Tankan Survey

It was a holiday in China and Hong Kong today, so the overnight markets were a little quiet. China is closed for the coming week by the way. There was overnight news from Japan though.

A combination of the Pound’s woes and a healthy bounce in Japanese business sentiment has pulled the GBPJPY rate down to JPY 149.50 this morning. A 10.1% rise in capital expenditure and the best sentiment reading for large manufacturers since December 2018 were enough to boost the Yen, which is a full Yen lower against the US Dollar as well; JPY 111.05 at the time of writing.

The Pound has regained a little composure elsewhere though. GBPEUR is back above €1.16…only just… and GBPUSD has levelled off around $1.3430. That is a little surprising because US markets are full of talk about tighter monetary policy. There seems little doubt at the Fed will commence a reduction in their bond-buying programme by November. The shortcut name for this process is ‘tapering’. Exactly when they will start raising interest rates again it’s more of a moveable feast. However late 2022 or early 2023 seem the most likely candidates.

Mixed US data leaves Dollar in ranges

American data was mixed yesterday. GDP growth was reported at 6.2% in the three months to June; slightly above forecast but there were significantly more unemployment claims last week compared to previous weeks and the Chicago purchasing managers index was 64.7, down on the forecasts and down on the previous month. So, it is perhaps not so surprising the USD hasn’t made further gains against the pound and it’s still below $1.16 against the euro.

Speaking of which, Europe’s shared currency will not have been helped by German retail sales data missing the forecasts. The 1.1% growth reported this morning for August was certainly better than the contraction of 4.5% last month but less than the markets had hoped for and it doesn’t wipe out July’s contraction. We will see some purchasing managers indices from France, Germany, Spain, and Italy this morning; the largest economies of the currency sharing block. We will also see consumer price inflation data for the whole of the eurozone. So the euro will be vulnerable to volatility during the mid-morning session. GBPEUR is balanced in the centre of a €1.1550 to €1.1650 range right now.

Commodity uncertainty flattens the AUD, NZD and CAD rates

Thursday saw most other currency pairs move in a crab-like fashion. The sideways trading pattern was the dance du jour. GBPAUD is wedded to AUD 1.8650 and GBPNZD is focussed on NZD 1.9525 but GBPCAD is a little more expansive; shimmying between CAD 1.7050 and 1.7180. The juxtaposition between China’s slump in manufacturing activity but concerns over the reported scarcity of coal and other raw materials are causing uncertainty in commodity markets. The currencies mentioned above are all directly affected by commodity markets.

NZD prepping for possible rate hike

The Kiwi Dollar could well strengthen a little further in the days ahead because the Reserve Bank of New Zealand is expected to raise its base rate by 25 basis points on Wednesday. No change is expected from the Reserve Bank of Australia on Tuesday.

This afternoon brings US business sentiment indices galore, so we can expect USD volatility and it is the first day of a new month and a new quarter, so there could be unexpected shifts in rates as traders take up new positions.

And on this day in 331 BC, Alexander the Great defeated Darius III of Persia in the Battle of Gaugamela. I know this because I played Darius in my school play and the kid who played Alexander sliced me when he ran me through on stage (not historically accurate. Darius was defeated but escaped in real life). I still have the scar on my rib as evidence. I suspect schools today would use plastic swords. Health and safety and all that.

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