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Daily brief

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All eyes on share prices

USD: The dollar watched, transfixed, as the US equity market followed the lead of East Asia and plunged 4.4%. Trump was quick to blame the Federal Reserve, saying it was "making a mistake" and had "gone crazy". Investors thought the sell-off might also have had something to do with the US administration's trade wars and oil embargos, so their immediate reaction was not to head for the safety of the USD. A 2.6% annual rise in US producer prices did not inspire them to buy the dollar, nor a 1.0% increase in wholesale inventories, so the USD was left on the sidelines. Its performance was accordingly average, with a 0.4% loss to the euro.

EUR: Italy again. This time it was deputy prime ministers Matteo Salvini and Luigi Di Maio insisting that they would not rethink their deficit budget despite 10-year Italian bond yields rising to 308 basis points over the equivalent German issues. The last time the gap was so wide was in 2012, at the height of the European debt crisis. The government seems determined to face down investors who are offloading Italian debt, challenging them to take the spread out to 400 basis points, a psychologically sensitive level for Italians. Those investors did not immediately rise to the challenge. In fact the EUR had a reasonably good day, keeping pace with the GBP.

CAD: Canadian equities suffered less punishment than those south of the border, falling by 2.2%, but the CAD was less fortunate. A broad risk-off mood was damaging to most commodity-related and emerging market currencies and the USD moved 0.7% higher against the Loonie. The oil price did not help matters: WTI was down by 4% but that was not the CAD's main problem, it just added insult to injury.

GBP: The USD lost 0.4% to the British pound, which enjoyed another day of positive Brexit news and rumour. EU negotiator Michel Barnier said Britain could have a deal by next Wednesday as long as the government was prepared to reconsider some of its "red lines" about the internal Irish border and the customs union. Theresa May's coalition partner, the Northern Irish Democratic Unionist Party, was not overjoyed at that prospect, threatening to vote down the Budget at the end of this month, but investors saw it more as saber-rattling than a real threat. They also shrugged off some mediocre UK economic data, which showed manufacturing output falling, the trade deficit widening and the economy stagnating in August.  

JPY: The yen was the principle beneficiary of the equity sell-off, as investors sought to take advantage of its supposed safety. As Wall Street fell the JPY powered ahead, though it was not looking so perky this morning as the Nikkei225 suffered the same fate as the DJ30, falling 4% today. The USD's net 0.9% loss to the yen might well have been bigger if that had not been the case. 

USD sidelined as investors focus on falling equities

USD sidelined as investors focus on falling equities

EUR sidesteps coalition's bond price challenge

EUR sidesteps coalition's bond price challenge

CAD hurt by risk-aversion and lower oil prices

CAD hurt by risk-aversion and lower oil prices

GBP helped by more positive Brexit tone

GBP helped by more positive Brexit tone

JPY benefits from safe-haven demand

JPY benefits from safe-haven demand

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