Chinese Yuan strengthens on currency intervention reports
12/Ιαν/2016 • Currency Updates•
The major currencies traded mostly within a narrow trading band as markets opened for the week on Monday, with no major economic announcements or data releases leading to a relatively quiet trading session.
However, with important political and economic decisions pending across the world, businesses with exposure to foreign currencies need to keep a close eye on the financial markets.
Yesterday morning Sterling recovered from a five-and-a-half-year low against the US Dollar, despite concerns over a dovish Bank of England and the EU referendum weighing on the UK currency. The Dollar received modest headwinds from Friday’s impressive labour report, with the currency also ending marginally stronger versus the Euro.
Over in China, the Yuan reversed some of its recent losses, strengthening versus the US Dollar following reports of another round of aggressive currency intervention by Chinese authorities. In line with our expectation, the People’s Bank of China reiterated its desire to keep the Yuan stable against its basket of currencies after the central bank’s chief economist Ma Jun allayed fears of a continued long-term depreciation of the currency on Monday.
Elsewhere, Sweden’s central bank, the Riksbank, edged closer to currency intervention for the first time in 15 years, while Swiss National Bank Chair Thomas Jordan claimed that the Swiss Franc would likely hold steady or ease this year.
Away from the major economies, the South African Rand continued its remarkable decline, falling by over 2% against the US Dollar to a fresh record low. The Rand continues to suffer from investor concerns about domestic political and economic strains ahead of elections later this year.
Major currencies in detail:
The Pound remained under pressure on Monday, although rallied late on in the session to end 0.2% higher versus the US Dollar.
With no economic data releases, the spotlight remains firmly on this Thursday’s BoE meeting and monthly minutes. Investors are now expecting a repeat of December’s dovish message, with the market turmoil in China and weakness in global oil prices likely to keep inflation lower for longer and prevent any imminent rate hike from taking place.
Moreover, sentiment for the Pound remains soured by uncertainty surrounding Britain’s EU referendum, which contributed to Sterling recording its seventh straight week of losses against the Euro on Friday.
Today bodes to be a much busier day with industrial and manufacturing production data at this morning likely to be in focus.
A lack of major data or announcements in the Euro-area yesterday meant Euro volatility was at a minimum and the currency ended unchanged versus the US Dollar.
The latest investor confidence survey from Sentix underwhelmed again, registering just 9.6 in January, well down on the 15.7 recorded in the month previous amid a further deterioration in Eurozone economic performance.
Despite the recent lack of growth and inflation, the latest Reuters poll of Euro-area traders suggested there was almost no chance of another cut in the European Central Bank’s deposit rate at either the January or March monetary policy meetings.
Trading was similarly subdued in the US on Monday, and as such the US Dollar index was little moved, increasing by 0.15%.
There was some mostly encouraging labour data following on from last Friday’s stellar jobs report. The latest labour market conditions index from the Federal Reserve ticked upwards modestly to 2.9 from 2.7. Meanwhile, the Conference Board Employment Trends Index rose 0.8% this month, boosted by higher temporary employment.
The US labour market continues to defy recent global pressures, with last Friday’s 292,000 level of job creation, in our view, putting the Fed tentatively on course for three or four rate hikes this year.
A handful of economic data releases today will likely be overshadowed by speeches from Fed members Fischer and Lacker today. Investor, as always, will be looking to gain insight into both the timing and pace of future rate hikes from the US central bank.
Rest of the world
Global oil prices continued their seemingly endless decline on Monday, falling once again to a fresh 12-year low below $32 a barrel. This sent the oil-dependent Russian Ruble, Norwegian Krone and Canadian Dollar sharply lower against the USD yesterday.
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