Forexlive Americas FX news wrap: The pound gets hammered. Trades to lowest level since Jan 2017
Forex news for NY trading on August 9, 2019
- US stocks end lower and a volatile week with declines
- Peter Navarro: Bullish on the US and the US stock market
- IMF issues annual report on China
- CFTC commitment of traders: GBP shorts the greatest since April 2017
- US WTI crude oil futures settle at $54.50
- In addition to tweets and headline news out of China/US on trade, what is on news calendar next week
- China has chartered its first US crude cargo since the most recent tariff threat
- White House clarifies comments on Huawei
- Baker Hughes oil rig count 764 vs 770 last week
- European equity close: Italy leads the slump on election worries
- Are you hedging GBP shorts into Brexit deadline? - BAML
- Trump says he wouldn't devalue the dollar
- Gove: PM keen to explore a deal that can pass parliament with EU leaders
- Trump says he would like to see the Fed cut rates by a full percentage point
- Pres. Trump: US is doing very well and still talking to China, but no deal now
- Turkey tapped into swap agreement with China in June
- Canada July employment -24.2K vs +15.0K expected
- US PPI final demand for July 0.2% versus 0.2% estimate
- The JPY is the strongest and the GBP is the weakest as NA trader enter for the day
- Canada July housing starts 222.0K vs 202.0K expected
In other markets:
- Spot gold fell $-8.66 or -0.58% at $1492.30
- WTI crude oil futures settle up $1.73 or 3.29% at $54.27
In the US stock market a late selloff, snuffed out an afternoon recovery (the Dow went positive for a moment). The major indices ended the session lower on the day and near mid-range levels. European shares were not as fortunate. They all closed near session lows today. Below is a summary of the %high, %low and %close for the major indices.
In the US debt market today, yields are closing higher after earlier declines were erased.
European benchmark yields were mixed with the Italian notes getting smashed after League leader Matteo Salvini said his coalition with the 5-Star Movement was untenable and called for early elections. German 10 year attracted some safe haven buyers. UK yields fell after GDP came in negative.
It's Friday in a world where there is lots of weekend risk.
However, there was one standout performer (or underperformer I should say) and that was the GBP.
The GBP started to move lower early, picking up downside momentum after 2Q GDP came in at -0.2% QoQ vs 0.0% estimates and closing at session lows.
Imports plunged -13% after a 1Q surge on the back of hoarding of foreign made products. In addition the service sector showed sluggishness for the 4 consecutive month.
With 83 days left until the Brexit finish line (with a deal or no deal still up in the air), the clock continues to tick, and that too is worrying investors and businesses alike. The game of chicken continues and the GBP is taking on most of the heat.
Looking at the below charts showing the % changes of the major currencies vs each other, the GBP was the runaway weakest currency of the bunch It fell the most vs the JPY (-1.25%). The GBPJPY traded at the lowest level since October 2016. It also fell -1.03% vs the EUR and the CHF. The EURGBP traded to the highest level since October 2009. The GBPCHF traded at it's lowest level since October 2016.
With the currency so weak, you might expect some pick up in growth, but it is not to be at least according to 2Q growth, which spells trouble for the UK as bigger question marks remain for it's future.
In Canada today, employment data did not have to compete with the US employment numbers, but it did have to compete with things like oil. The jobs data came in weaker than expected with the unemployment rate higher at 5.7% vs 5.5% estimate. The net change in employment was also weaker at -24.5K vs 15.0K estimate (the lowest level since August 2018).
The CAD initially moved higher with the USDCAD moving to a high of 1.3273. However, runnning counter to that fundamental news, was higher oil prices which tends to help the CAD (crude rose 3.29% today as it continued to benefit from the headlines earlier in the week that the Saudi's would do all it could to get the price higher).
When the price of the USDCAD could not go higher (the initial rally stalled at the 50% of the move down from the Wednesday high at 1.3274), the buyers turned to sellers. The move higher from the pre-employment low of 1.3205, was fully erased (and then some). The low for the day reached to 1.31955.
Later in the day, Peter Navarro (US trade representative) went on CNBC and outlined 7 acts of economic aggression built in structurally to the China economy including:
- Cyber intrusions
- Forced technology transfer in exchange for access to the Chinese market
- Intellectual property
- Dumping products below costs into our economy
- Manipulating its currency
- Massive subsidies to state own companies
- Fentanyl that is killing 100 Americans a day.
He said these are structural changes that China has to make changes to get a deal done.
One of the problematic issues will be the manipulation of the currency. He argued that China has devalued their currency by 12% since the tariffs were enacted to neutralize the impact of the tariffs. Well that will happen naturally if the administration weakens the Chinese economy due to the tariffs. How can you get to a solution if manipulation is just market forces (more or less). It is a difficult puzzle to correct.
Time will tell, but it may take a lot of time too.
Wishing you all a good weekend.