FX Rate News

The euro edged lower and the dollar strengthened broadly on Friday, awaiting a keynote speech by the head of the Federal Reserve after some of his fellow policymakers signalled reluctance to cut U.S. interest rates further.

Fed Chairman Jerome Powell is expected to address the Jackson Hole symposium of central bankers at 1400 GMT, and traders will be keen to see how closely he allies himself with the hawkish camp.

Currency markets have in recent months been driven by global central banks’ shift to more accommodative policy settings as economic demand slows and trade disputes intensify.

Expectations that the Fed will cut rates at its next meeting in September are still very high, according to interest rate futures, but the currency market is likely to react if the tone of Powell’s comments does not match these dovish expectations, analysts said.

“I would expect him to stress that the U.S. economy is strong enough that…just a rate cut or two, taken out as ‘insurance’, will be enough to keep the recovery on track,” said Marshall Gittler, chief strategist at ACLS Global.

“That’s probably more hawkish than what the market is expecting and could be positive for the dollar.”

The euro was down 0.1% at $1.1067 after falling to a three-week low of $1.1061 earlier. The index which tracks the dollar against six major currencies was up by 0.2% at 98.35.

The euro attempted to stage a relief rally the day before following the stronger-than-expected euro zone purchasing managers’ surveys for August, but the gains proved short-lived.

The PMIs will keep “pressure on the European Central Bank to deliver further stimulus to support growth” in the euro area because “surveys remain consistent with weak growth continuing in the third quarter,” said Lee Hardman, currency analyst at MUFG.

Views that rates may not go as low as previously expected also bolstered the New Zealand dollar after its central bank chief said he was “pleased” with where interest rates were.

Reserve Bank of New Zealand Governor Adrian Orr told Bloomberg TV he could afford to pause on monetary policy after 50-basis-point cut this month.

The New Zealand dollar jumped from a three and-a-half-year low of $0.6362 reached Thursday, trading up 0.4% at $0.6387.

China’s offshore yuan stabilized at 7.0920 after dropping to an 11-day low of 7.1072 overnight as the People’s Bank of China lowered its official yuanmidpoint to an 11-year low. Still, the move was limited given that the set rate was nowhere near the lows traders were expecting.

The pound gave back some of the gains it made on Thursday on the back of German Chancellor Angela Merkel giving Britain 30 days to come up with a Brexit plan, dropping 0.4% to $1.2208. Against the euro, it fell 0.3% at 90.66 pence.

The euro struggled to make headway against a resilient dollar on Wednesday and was stuck near $1.11, with forex markets mostly calm ahead of a crucial meeting of central bankers later this week.

With markets rushing to price significant easing from central banks in the United States and Europe, the outlook for euro/dollar will depend largely on whether or not policymakers live up to those expectations.

Officials from major central banks will gather at Jackson Hole, Wyoming, on Friday with markets focused on a scheduled speech by Federal Reserve Chair Jerome Powell.

His comments are of particular interest after last week’s inversion of the U.S. yield curve – widely regarded as a recession signal – boosted expectations the Fed would lower interest rates at its September policy meeting. Faced with rising risks to the U.S. economy, the central bank in July cut rates for the first time since the financial crisis.

“In the big scheme of things, markets are relatively range-bound, with the focus on Jackson Hole later this week,” said Manuel Oliveri, a strategist at Credit Agricole.

The euro was last down 0.1% at $1.1092. The dollar, measured against a basket of currencies, rose 0.1% to 98.265.

Oliveri expects the euro to strengthen towards $1.12 by September, even though the European Central Bank will struggle to exceed investor expectations for cutting rates.

Talk of more fiscal spending in Germany, and the hit to the U.S. yield advantage from falling interest rates, should support the euro, he added.

“Fiscal stimulus is a positive for the currency,” he said.

The dollar has also been supported by talk of more spending – President Donald Trump said on Tuesday his administration was considering potential tax cuts on wages as well as profits from asset sales.

The single currency was little moved on Tuesday after Italy’s Prime Minister Giuseppe Conte announced his resignation, with some investors believing the move made a snap general election less likely.

Elsewhere, sterling was the big focus as Prime Minister Boris Johnson heads to Berlin to meet Chancellor Angela Merkel for talks over Brexit.

The pound jumped on Tuesday after Merkel raised the possibility of practical solutions to the so-called backstop – an insurance policy for the Irish border after Brexit -that London opposes.

With the British currency having slumped in recent weeks on concerns about a no-deal Brexit on Oct. 31, investors have built up a huge short position – analysts say that makes the currency vulnerable should any positive noises emerge from Johnson’s meeting with Merkel.

Sterling was last down 0.3% at $1.2134 and 0.2% lower versus the euro at 91.405 pence.

The dollar rose against the yen, rising 0.3% to 106.55.

MUFG analysts said the dollar was rising against the yen after Trump said he wanted to introduce new tax cuts and on reports that negotiations to agree a U.S.-Japan trade deal were making progress.

“While trade talks are ongoing, it will be more difficult for Japan to express concern over a stronger yen given President Trump’s concerns over currency manipulation,” the analysts wrote.

The euro hovered around a two-week low versus the dollar as the U.S. currency held strong on Tuesday, boosted by slightly higher Treasury yields, while political uncertainties in Italy also kept the common currency subdued.

Yields on U.S. benchmark 10-year government bonds pulled away from three-year lows, helped in part by the prospect of Germany ditching its balanced budget rule to boost spending and on more economic support measures by China.

Yields fell last week to cause an inversion of the short-dated and long-dated yield curve, sending alarms through financial markets given that several recessions in the past have been preceded by yield curve inversions. The curve of the two-year and 10-year Treasury yields was slightly steeper on Tuesday.

“The dollar is higher across the board, tracking the rebound in yields. The prospect of Germany embarking on stimulus was the turning point and the dollar has regained momentum since,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The dollar index was flat at 98.385 after rising to a two-and-a-half week high of 98.40 earlier.

The euro was also flat at $1.1078, but not far from the $1.1066 low it reached on Friday on lingering concerns over political developments in Italy.

Prime Minister Giuseppe Conte is set to address parliament on Tuesday afternoon (1300 GMT) to defend his record. He might hand in his resignation immediately afterwards or could instead wait for a formal vote to make it clear he is being unseated by the far-right League.

A vote has not yet been scheduled and there is widespread uncertainty over how the political turmoil will end Deputy Prime Minister Matteo Salvini pulled the plug on the ruling coalition Movement earlier this month, hoping to trigger early elections that would likely see him crowned as prime minister.

“The possible success of the no-confidence vote in Italy today could push euro/dollar towards and even below the psychological 1.1000 level today,” said Chris Turner, head of forex strategy at ING.

“Though falls are unlikely to meaningful or persistent,” he said, “because the negative spillover into the euro from periods of political uncertainty in Europe has been somewhat limited over the past year.”

Elsewhere, a stronger dollar pushed the offshore Chinese yuan lower to have it match a six-day low of 7.0770 against the greenback earlier, though China’s offshore yuan was last trading neutral at 7.0708.

The pound was down by 0.3% both against the dollar and the euro, last at $1.2092 and at 91.55 pence against the euro.

British Prime Minister Boris Johnson made new waves by writing to European Council President Donald Tusk on Monday to propose replacing the Irish backstop with a commitment to put in place alternative arrangements by the end of a post-Brexit transition period.

Johnson will meet both French President Emmanuel Macron and German Chancellor Angela Merkel during the week and is also planning to meet Ireland’s Prime Minister Leo Varadkar in September.

Market focus should shift to the annual symposium of global central bankers starting on Friday at Jackson Hole, Wyoming.

The Japanese yen jumped to the day’s high on Wednesday as the United States bond yield curve inverted for the first time since 2007 as investors, gripped by worries of a looming global recession, fled to the safety of perceived safe-haven assets.

An inversion of the U.S. Treasury yield curve — when short-dated bond yields fall more than their longer-dated counterparts– is considered as a classic recession warning and the drop in bond yields sent a chill through global markets after concerns of a U.S.-China trade dispute receded somewhat.

The yen, which was already trading stronger on the day, received a further boost and headed towards a near 1-1/2 year high versus the U.S. dollar.

“What this (yield curve inversion) means is that markets are signalling that central banks are running out of options. Away from the headlines on the trade war, it points to a bigger broader picture of major industrial economies such as China and Germany haemorrhaging growth,” said Stephen Gallo, European head of forex strategy at BMO.

Data on Wednesday showed that the Chinese economy continued to slow. Industrial output rose in July at the slowest pace in more than 17 years. Elsewhere, slumping exports sent Germany’s economy into reverse in the second quarter.

The Japanese currency strengthened to 106.12 versus the dollar, its highest on Wednesday, up 0.6% on the day.

Overnight, it had fallen to a one-week low after U.S. President Donald Trump backed off his Sept. 1 deadline for imposing 10% tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods. The announcement came after renewed trade discussions between U.S. and Chinese officials.

China’s offshore yuan gave up some of its earlier gains on Wednesday as weaker-than-expected economic data tempered the optimism generated by the U.S. decision to delay tariffs.

The fall in the yuan and the rise in yen mirrored analysts’ views that the delay in tariffs, although encouraging, wasn’t even close to resolving the U.S.-China trade war.

“No one really believes this is a firm step towards a deal” between the United States and China, said Neil Mellor, senior forex strategist at BNY Mellon.

“The markets already moved on…and longer term the yuan will continue to weaken,” Mellor said.

The offshore yuan had jumped to a one-week high against the dollar on Tuesday after the tariff delay, but it fell back 0.4% against the dollar to 7.0396, still more than seven to the dollar, the level it reached last week when the 10% tariffs were announced.

China fixed the onshore yuan at 7.03, “the only sign so far of China making any concessions” to the United States, said Esther Reichelt, an analyst at Commerzbank.

Elsewhere, major currencies were little changed. The dollar index, which is down around 1% since the start of August, was flat around 97.7 despite the yield curve inverting.

Same goes for the euro, which was flat at $1.1180 after first estimate of second-quarter eurozone gross domestic product showed growth in the euro area remained stable as quarter-on-quarter GDP rose 0.2% as expected.

Sterling was slightly higher against the dollar and the euro, last by 0.2% at $1.2087 and 92.49 pence versus the common currency , even though inflation in Britain was 2.1% in July, above Bank of England’s target.

However, current levels in sterling suggest investors aren’t willing to take the British currency away from the deep lows it reached last week.

The dollar remained on the defensive against the safe-haven yen on Monday as the Sino-U.S. trade dispute looked set to drag on with no settlement in sight, while holidays in Japan and Singapore made for very thin trading.

Confusion still lingered after U.S. President Donald Trump on Friday said he was not ready to make a deal with China and even called a September round of trade talks into question.

Goldman Sachs over the weekend cut its forecast for U.S. economic growth, warning that a trade deal was unlikely before the 2020 presidential election and that the risks of a recession were increasing.

“Overall, we have increased our estimate of the growth impact of the trade war,” the bank said in a note.

All eyes will be on Chinese figures on retail sales and industrial output due Wednesday to gauge the impact of the long-running tussle on domestic activity.

Beijing has allowed its yuan to ease in recent weeks as an offset to the tariffs, pressuring emerging market currencies across Asia and boosting the yen.

The dollar edged up to 7.1034 yuan in offshore trade early on Monday as investors waited to see where the Chinese central bank would chose to fix it.

The dollar went the other way against the yen, easing to 105.40 after hitting a seven-month low around 105.25 on Friday. The dollar was hardly alone, with the euro down at 118.16 yen and near its lowest since April 2017.

Likewise, sterling had sunk to depths not visited since 2016 at 126.69 yen having shed over eight yen in little more than two weeks.

The pound struck a two-year trough on the dollar on Friday after data showed the UK economy unexpectedly contracted in the second quarter, only adding to the bearishness over Brexit and the chance of a no-deal exit.

Sterling was last at $1.2020 and eyeing support at $1.1979, which marks a low from January 2017.

The Telegraph reported Labour MPs had been told to cancel all travel in early September in anticipation of Jeremy Corbyn tabling a motion of no confidence in the government.

The euro was steady on the dollar at $1.1200, bound between resistance at $1.1249 and support at $1.1175.

Politics remained a drag with the prospect of snap elections in Italy up in the air as opposition built to League chief Matteo Salvini’s plans for a vote.

Another hurdle will be Germany’s gross domestic product figures on Wednesday where a contraction is a real risk given a steep drop in factory output in June.

The dollar steadied on Thursday as risk sentiment rose after resilient Chinese trade data and as Beijing’s efforts to slow a slide in the value of the renminbi encouraged investors to buy riskier currencies.

Data showed Chinese exports rose 3.3% in July from a year earlier, while analysts had looked for a fall of 2%. Policymakers meanwhile fixed the daily value of the yuan at a firmer level than many had expected, even though it was beyond the 7 per dollar level for the first time since the global financial crisis.

Against a basket of currencies the dollar was broadly steady at 97.58, but it weakened 0.1% versus the Australian dollar and the British pound.

“The recent comments from Chinese officials suggest they want to stabilise their currency, otherwise a sharp currency drop may fuel capital outflows,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

“The other factor helping risk sentiment is a growing swathe of central bank cuts.”

Those rate cuts have helped soothe sentiment this week among investors anxious about the downside risks to the global economy from a trade conflict between Washington and Beijing.

This week, New Zealand joined India and Thailand in cutting interest rates, with market expectations growing that other major central banks will join in with monetary policy easing.

Indeed, market expectations for more than a quarter point rate cut from the U.S. Federal Reserve in September is still firmly baked into bond markets, despite an overnight bounce in global markets.

Those expectations forced the dollar to weaken also against the euro and the yen.

The yen was a tad firmer at 106.185 per dollar. It touched 105.500 yen overnight, its strongest level since Jan. 3, before pulling back slightly.

“The yen’s appreciation versus the dollar may have slowed for now, but it stands to keep gaining in the longer term,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. “Its other peers, notably the antipodean currencies, have weakened severely and this provides overall support to the yen.”

The kiwi nudged up 0.1% to $0.6452, following a slide to a 3-1/2 year low of $0.6378 on Wednesday after the rate cut.

The offshore yuan pulled back from an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from weakening further, following a sharp drop that prompted the U.S. government to declare China was manipulating its currency.

China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency. On top of that, the People’s Bank of China fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.

These moves have led analysts to think that Chinese authorities may not be ready yet to let the yuan weaken much further

“The recovery in yuan…is triggered by the fixing, which has eased some concern about competitive currency devaluation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The offshore yuan was last up by 0.27% at 7.0269 against the dollar after plunging to 7.14 Monday night, the lowest since offshore trading began in 2010. The onshore yuan opened trade at 7.0699 per dollar, versus its last close at 7.0498.

If the Chinese central bank fixes the rate at or above 7, this will likely be an “indication they are ready for the remnibi weakening phase,” said Stephen Gallo, forex strategist at BMO Capital Markets.

The small rebound in the Chinese remnibi has shifted investors’ focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.

The yen was last down by 0.46% at 106.43, pulling back from a 16-month high of 105.52 it reached overnight excluding the January flash crash. The franc was 0.2% weaker, bouncing off a 25-month high it reached on Monday.

On Monday, China let its currency break through a key support level to an 11-year low in a sign that Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs.

And on Tuesday, China’s official Communist Party newspaper said that the United States was “deliberately destroying international order”, a day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute.

The escalation in the US-China trade war began last week when President Donald Trump unexpectedly said he would impose 10% tariffs on $300 billion of Chinese imports from Sept. 1., essentially imposing a levy on all Chinese goods coming into the United States. Since then, the offshore yuan lost 3.4% of its value against the greenback.

Elsewhere, the euro was flat at $1.1185 after jumping to an 18-day high against the dollar overnight. The index which tracks the dollar against a basket of six major currencies was also flat at 97.62.

The pound was up 0.3% at $1.2176, not far from the 31-month low it reached last week.

China let its yuan weaken below 7 yuan per dollar on Monday, an 11-year low, as the escalation in the U.S.-China trade war shook currency markets.

Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens, with the Japanese yen surging to a seven-month high.

Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break thought the floor to its lowest in the onshore market since the 2008 global financial crisis.

In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began. The currency was headed for its biggest one-day drop in four years. It was last down 1.45% at 7.0395 in offshore markets.

The fall came after Beijing vowed on Friday to fight back against U.S. President Donald Trump’s decision to impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce.

“The fallout has been most evident in the Asia region,” MUFG analyst Derek Halpenny said. “We certainly expect to see general FX volatility increase in the coming days with daily PBOC (People’s Bank of China) CNY fixes an important focus each day.”

The currencies of other Asian economies are closely linked with China’s growth prospects also dropped. The Korean won fell 1.4% against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7%.

The Australian dollar, often used as a proxy bet on China, shed as much as 0.5% to $0.6748, a seven-month low.

Japan’s yen, which investors buy in times of risk aversion, rose 0.7% to its highest since a January flash crash. The yen was last up 0.7% at 105.89, after hitting 105.78 earlier.

Japan’s top currency diplomat, Yoshiki Takeuchi, warned that Tokyo was ready to intervene if yen gains threatened its export-reliant economy.

The U.S. dollar edged lower against a basket of currencies, down 0.38% at 97.70. Against the euro the dollar slipped to $1.111.

Analysts said Trump, who has repeatedly called for a weaker dollar in 2019, was unlikely to ignore the yuan’s depreciation.

“There is also a risk later that President Trump responds to 7+ levels in $/CNY by claiming that China is playing a ‘big currency manipulation game’. This may extend to a threat to weaken the dollar, which will only encourage short positions in USD/JPY and a pick-up in traded volatility prices,” ING analysts said.

The Swiss franc, another safe-haven currency, strengthened 0.2% to 1.0883 francs per euro, a two-year high.

Sterling fell again after media speculation over the weekend that Prime Minister Boris Johnson was preparing for a general election. The pound shed 0.5% to $1.2105, not far from its two-year low of $1.2080 touched last week.

It was 0.5% weaker against the euro at 91.84 pence.

A U.S. threat to impose new tariffs on Chinese imports pushed the safe-haven Japanese yen to a five-week high against the dollar and a two-and-a-half-year high against the pound.

U.S. President Donald Trump said a 10% tariff would be imposed on $300 billion worth of Chinese goods on Sept. 1, after U.S. negotiators returned from trade talks in Shanghai and reported no progress. Trump claimed China had failed to live up to promises made in previous talks.

The yen was up 0.4% to 106.95 against the dollar. It had jumped to 106.86 in Asian trading, its strongest since June 25. It was last up 0.6% at 129.61 against the pound after gaining to 129.41 earlier, its strongest since November 2016.

“There was a speculative move to test the dollar/yen’s downside, but it ran into a lot of real-demand bids,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“Yen buying still has further room to run, especially against the crosses. Trump has given us plenty of reason to move to risk-off trades. The trade war will be in focus for some time to come.”

The battered pound recovered some losses on Friday, but it was not far from the 30-month low it reached on Thursday. It was last trading unchanged at $1.2123 and at 91.48 pence against the euro.

Most market participants remain wary of sterling, worried that the chances of a disorderly Brexit grew after Boris Johnson took over as prime minister last month.

Traders will be watching UK construction purchasing managers’ survey due at 0830 GMT. According to economists polled by Reuters, the PMI is expected to rise to 46 in July from 43.1 in June, though still remaining in the contraction territory.

The euro was unchanged at $1.1091, not far from the 26-month low it hit the previous day.

Non-farm payrolls are due in the United States later in the day. Economists a decrease in the number of jobs added to the economy, to 164,000 in July from 224,000 in June.

Responses to the jobs report are “skewed toward a bigger move to a weak report, given it would reinforce the increased global risk concerns,” said Derek Halpenny, currency strategist at MUFG after the escalation in the U.S.-China trade war.

Elsewhere, the Swiss franc reached a two-year high of 1.0949 against the euro.