Market Summary

The relatively modest moves in currencies today are likely a reflection of cautious market attitudes ahead of the key August U.S. non-farm payrolls report due tomorrow. Yesterday’s surprising uptick in the U.S. manufacturing survey data caused a bounce in equity markets and supported risk sensitive dollar-bloc currencies (Australia, Canada, New Zealand) and emerging currencies. That said, today’s market moves are best described as mixed, often reflecting the impact of country specific economic data and events. The British pound is underperforming after further evidence that house prices are slipping again, the Swiss franc was encouraged by firm GDP data and the Swedish krona also got some support from the central bank’s rate hike. The euro is hesitant to move in either direction, with the ECB’s announcement of the extension of unlimited 3-month lending confirming what the markets already anticipated. We expect a cautious mood and range trading conditions to persist at least until tomorrow’s U.S. data.

Regional Highlights

Asia/Pacific

Mixed regional currency trends are consistent with the overall FX market that is lacking a clear direction today. The Japanese yen is slightly firmer, recovering some of the ground it lost yesterday afternoon after the surprising improvement in the U.S. manufacturing survey data. The Australian dollar is softer, with the July trade surplus narrowing by more than expected to $A1.9B. There were some developments on the political front as an independent lawmaker pledged to support the Labor party although the outcome of the election still remains uncertain. Elsewhere, the NZ dollar is firmer, as are most emerging Asian currencies. After three straight rate hikes earlier this year, Malaysia’s central bank kept its policy rate at 2.75% today, pointing to slowing global growth.

Europe

The euro is broadly steady today, with neither the economic data nor the ECB policy announcement so far causing a major move. The ECB left its Refi rate unchanged at 1.00%, reiterated that rates were appropriate and said that it will continue 3-month refinancing operations at full allotment – a decision that had already been pre-signaled in August by the Bundesbank President Axel Weber. In economic data, Eurozone Q2 GDP rose a revised at 1% q/q (non-annualized) and 1.9% y/y. The British pound is falling behind the euro for the third straight day after U.K. August Nationwide house prices fell by 0.9% m/m, the largest decline in six months, and slowed to 3.9% y/y. Separately, the U.K. August construction PMI slipped to 52.1. Other European currencies are mostly enjoying a positive session. The Swedish krona is up after Sweden’s Riksbank raised its policy rate by 25bp to 0.75% and said that more rate increases will follow “for quite a while”. The Swiss franc is also higher, encouraged by a strong Q2 GDP report that showed a rise of 0.9% q/q (non-annualized) on the back of a 1% q/q gain in Q1.

Americas

U.S. initial jobless claims fell to 472,000 and continued claims to 4.456 million – data that is unlikely to have a significant impact on the market ahead of tomorrow’s key August payrolls report. Later today July factory orders are expected to rise by 0.2% m/m and pending home sales to fall by 1% m/m, a third straight decline. The most significant event elsewhere in the region was the policy announcement by Brazil’s central bank, which paused its SELIC rate at 10.75% in line with expectations and signaled no bias going forward. The real as well as the Mexican peso and the Canadian dollar are slightly firmer against the greenback.

Market summary and commentary provided by Vassili Serebriakov, Currency Strategist, Wells Fargo Bank.