UK Pound Sterling, US Dollar and EUR single currency news from Argentex.
There were no data releases from major economies at all throughout yesterday, so the exchange rates were quiet, right? Couldn’t be further from the truth! Sterling lost significant ground including bouncing around a trading range of 320 pips before finishing with a loss on the day just shy of 1% vs the euro. Against the dollar, while the pound enjoyed a break higher on the day, in comparison with the melee going on elsewhere GBPUSD action was downright disappointing. Given that sterling neither holds the title of funding currency nor outright safe haven, it is likely to remain at the whim of the relative strengths of the other majors.
Let’s not beat around the bush, yesterday was pretty crazy and many traders are no doubt licking their wounds this morning. The S&P 500 was down 10% from recent highs, its largest daily drop since 18 Aug 2011. USDJPY fell more than 4.5% in the biggest single day decline since 1998. Also, CBOE volatility index (VIX) closed at its highest level since October 2011. Fed Funds futures have the likelihood of a September rate hike as low as 24%, from over 50% at the turn of the month and Barclays Capital posted note in the late afternoon yesterday suggesting that they were pushing back their expectations of lift off until March.
Euro proved to be the major winner as carry trades and an abundance of leveraged long-USD positions needed to be unwound. Range on day was another 3.5 cents against the dollar. As the move took hold from the end of last week and accelerated as we came out of the weekend, the seeming strength of the single currency initially seemed perplexing; just a few months ago experts were telling us that if contagion set in from the whole Greek debacle then it could signal the end of the euro experiment. Yet, with fear and risk aversion increasing, the single currency’s rise suggested a safe haven status. This was certainly not the case; instead, with interest rates so low, the euro has been used to fund the search for yield elsewhere – simply speaking, when it hits the fan the first thing that happens is these risk trades are reversed; hence the single currency strengthened.
City AM- Fightback fails to save Wall St from worst day since 2011.
The Times- Currencies pounded as rate freeze set to last.
Telegraph- Will Black Monday turn into an even worse Tuesday?