British Pound Swoons, US Dollar May Extend Gains on Jobs Data

2016-10-07 07:07:00

Talking Points:

British Pound swoons France’s Hollande urges painful Brexit bargain
Commodity currencies fall, Yen outperforms amid risk aversion in Asia
US Dollar may extend gains as jobs data reinforces Fed rate hike bets

The British Pound sank in early Asian trade, at one point losing as much as 7.5 percent against an average of its top counterparts. The move began just as a Financial Times (FT) article quoting Francois Hollande crossed the wires. Referring to the outcome of the Brexit referendum and recent strong-worded rhetoric from UK Prime Minister Theresa May, the French President argued that the EU must be as tough as possible on its neighbor across the English Channel.

“There must be a threat… a risk…a price”, Hollande said.“ If not…other countries would want to leave the EU to get the supposed advantages without the obligations.” Thin liquidity before the trading open on most Asian bourses probably amplified the move. The magnitude of the drop and the violent recovery thereafter – prices erased more than three quarters of the move within 10 minutes – suggests this is not the whole story however. Newswires have speculated that the participation of trading algorithms compounded volatility.

Shellshock after the Pound fiasco appeared to translate into wider risk aversion overnight. The sentiment-linked Australian, Canadian and New Zealand Dollars tracked Asian stock benchmarks and S&P 500 futures downward, with the Kiwi underperforming amid swelling RBNZ easing speculation. Markets now price the probability of a rate cut at next month’s policy meeting at 66 percent. The anti-risk Japanese Yen and US Dollar outperformed.

The greenback may continue to build higher as US Employment data is released. The economy is expected to have added 175k jobs in September, up from 151k in the prior month. An increase of more than 143k would keep the three-month average at 190k, a threshold identified by Fed Chair Yellen as supportive of a rate hike in 2016. This seems to mean that anything short of deep disappointment will reinforce already swelling tightening probability. The priced-in chance of an increase in December is now at 63.6 percent.

Losing money trading in the FX market? This might be why.

Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
22:30	AUD	AiG Perf of Construction Index (SEP)	51.4	-	46.6
23:50	JPY	Official Reserve Assets (SEP)	$1260.1b	-	$1256.1b
00:00	JPY	Labor Cash Earnings (YoY) (AUG)	-0.1%	0.4%	1.2%
00:00	JPY	Real Cash Earnings (YoY) (AUG)	0.5%	-	1.8%
01:31	CNY	Foreign Reserves (SEP)	$3166.4b	$3180.0b	$3185.2b
05:00	JPY	Leading Index CI (AUG P)	101.2	101.6	100.0
05:00	JPY	Coincident Index (AUG P)	112.0	111.8	112.1

European Session

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
06:00	EUR	German Industrial Production (MoM) (AUG)	2.5% (A)	-1.5%	Medium
06:00	EUR	German Industrial Production (YoY) (AUG)	1.9% (A)	-1.3%	Medium
07:00	CHF	Foreign Currency Reserves (SEP)	628.0b (A)	626.9b	Low
07:30	GBP	Halifax House Prices (MoM) (SEP)	0.0%	-0.2%	Medium
07:30	GBP	Halifax House Price 3Mths/Year (SEP)	5.9%	6.9%	Medium
08:30	GBP	Industrial Production (MoM) (AUG)	0.1%	0.1%	Medium
08:30	GBP	Industrial Production (YoY) (AUG)	1.3%	2.1%	Medium
08:30	GBP	Manufacturing Production (MoM) (AUG)	0.4%	-0.9%	Medium
08:30	GBP	Manufacturing Production (YoY) (AUG)	0.8%	0.8%	Medium
08:30	GBP	Visible Trade Balance (£, Mn) (AUG)	-11250	-11764	Medium
08:30	GBP	Trade Balance Non EU (£, Mn) (AUG)	-3700	-4188	Low
08:30	GBP	Trade Balance (£, Mn) (AUG)	-4000	-4502	Low
13:00	EUR	ECB’s Praet Speaks on Panel in Washington	-	-	Low
14:00	GBP	NIESR GDP Estimate (SEP)	-	0.3%	Medium