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US dollar benefits from risk off sentiment

Daily Currency Update

There was no top tier data from either the UK or Europe yesterday. This meant that eyes were on the ISM manufacturing PMI from the US Monday afternoon. The release was slightly better than forecast (52.8 seen versus 52.3 forecast) however it was the lowest reading since July 2020 when the world was starting to come out of the first wave of the pandemic. The report continues a string of poor data releases form the US which is signaling recessionary concerns. It is news elsewhere that has caused markets to react volatile, with a risk off tone. US Representatives Speaker Nancy Pelosi  is currently on a tour of Asia and there are expectations she may visit Taiwan tonight. Such a move would raise tensions between China and the US as China claims sovereignty over Taiwan. Chinese foreign ministry spokesman Zhao Lijian stating on Monday that Pelosi’s visit would lead to very serious developments and consequences.

GBP/USD had touched 1.2280 overnight and GBP/EUR had peaked at 1.1965 but the risk off markets have seen Sterling trading lower. GBP/USD opens today close to 1.2200 and GBP/EUR 1.1930. The EUR had been slowly advancing towards 1.0300, but the risk off tone has moved the currency pair closer to 1.0220. Data remains thin again today for the UK and Europe, so eyes will once again be on the US this afternoon as JOLTS job openings will be released at 3pm.

Key Movers

The Reserve Bank of Australia raised its cash rate 50 basis points to 1.85% on Tuesday and flagged yet more hikes ahead, continuing the aggressive tightening that many central banks have adopted to combat inflation. RBA Governor Philip Lowe comments following the release also stated that the RBA were committed to doing what is necessary to ensure that inflation in Australia returns to target over time after the most recent data from the Australian Bureau of Statistics shows CPI inflation rose 6.1% in the year to June. RBA's central forecast is for Consumer Price Index inflation to be around 7.75% over 2022, which is way above the 2 – 3% target. GBP/AUD has shot higher on the news and currently trades above 1.7600. AUD/USD has dropped back below 0.7000 with the Aussies also suffering on the back of the US dollar being bought as a safe haven with the risk-off sentiment in the market on anticipation of US Representatives Speaker Nancy Pelosi visiting Taiwan. The USD normally is bought, alongside other safe havens products such as Gold, JPY and CHF, when risk appetite of investors exits the market.

Expected Ranges

  • GBP/USD: 1.2140 - 1.2230 ▼
  • GBP/EUR: 1.1910 - 1.1980 ▼
  • GBP/AUD: 1.7360 - 1.7750 ▲
  • EUR/USD: 1.0120 - 1.0260 ▼