GBP: Global issues enough to hurt sterling
EUR: ECB getting what they want
USD: Benefiting from risk concerns
Risk appetite, and sterling assets as a result, have been given a knock lower overnight by warnings from Chinese regulators that bubbles exist in foreign markets and they will have to act to prevent similar issues within Chinese markets.
While these may be global issues, the correlation between sterling and stock markets is strong and hence the pound’s reaction overnight.
Until tomorrow’s Budget we expect sterling to continue to take its cues from the wider market.
Unlike Fed speakers yesterday, members of the ECB leaned into the belief that the central bank may need to increase its stimulus efforts in a bid to prevent bond yields from damaging the nascent recovery. Alongside the generalised risk-off feeling this morning, this has been enough to push the euro lower and only a strong inflation number (due at 10am) is likely to turn that around.
The dollar is starting to flex its muscles a little more this morning, pushing GBPUSD back to a 2-week low and EURUSD back towards the 1.20 level.
Yesterday’s rally in US shares should have had the dollar on the back foot but China’s worries over asset bubbles has eliminated that good will and both US and European markets are lower this morning as a result.
Yesterday’s speeches from Federal Reserve members were largely dismissive of the volatility seen in bond markets in the past fortnight. Further speeches are due today and are unlikely to change that narrative.
The AUD has rebounded overnight from the weakness caused by Monday morning’s expansion of the RBA’s bond buying program. Whether the announcement caused the currency to be oversold is academic; the crucial things for the AUD remains the ongoing maintenance of this risk rally and higher commodity prices as supply chains reopen in a post-Covid environment.
Today’s interbank rates at 08:24 against sterling. Movement vs yesterday.
|US dollar||$1.388 ↓|
|Australian dollar||$1.792 ↑|
|South African rand||R20.88 ↑|
|Japanese yen||¥148.3 ↓|
Have a great day everyone.