The currency blog

Despite good economic data yesterday from the US in the form of US pending home sales and Manufacturing ISM the market flipped into negative mode. There is no one reason for this shift but a culmination of reasons and this led to equities tumbling and Oil and commodities falling; the main losers were the banks as fears rose on renewed balance sheet concerns. September was previously touted as the month for stocks to fall and the first day of the month definitely backed up this prediction. Concerns over the sustainability of China’s growth were a big factor and also discouraging data from automakers. In the markets we witnessed further strength in the USD and the JPY as the risk aversion trend came into play. GBP/USD moved from a morning high of 1.6350 to a low of 1.6111 and EUR/USD retreated from 1.43 to 1.42; GBP/JPY fell back under the 150 level as the positive YEN feel on the new leadership continued coupled with strength on the back of risk aversion. USD/JPY moved into 92.00 levels and this brings the 90.00 level into focus again.

Yesterday in the UK economy we had mixed economic data with a rise in mortgage approvals and an improvement in M4 money supply- this is a positive as it lends some weight to the argument that QE may be starting to kick in- however still early days. The bad news was that net lending fell in July by the sharpest pace since records began in 1993 and UK PMI contracted sharply which led to a sharp sell off in sterling. UK construction PMI data just out came in better than previous at 47.7 showing a slowing pace in the contraction in the construction industry- the pound is up slightly on the news.

The big loser yesterday was the AUD losing 2% against the USD as the shift out of risk and commodities weakened the AUD and other commodity currencies. Concerns over China and if September does turn out to be a bad month for stocks could see a turnaround from recent AUD strength. The market was a little disappointing at the dovish tone set by the Reserve Bank of Australia and the failure to specify when rates would be hiked; however second quarter GDP came in last night at 0.6% which is much better than expected giving the AUD some support.
Eurozone GDP and Federal Reserve minutes will dominate the data releases for today.

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