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FX Daily, October 24: Dollar Begins Mostly Slightly Lower, and Risk is On to Start the Week

Swiss Franc

Sterling vs the Swiss Franc has remained close to its lowest level in history caused by the aftermath of the Brexit vote back in June and more recently the announcement that Article 50 will be triggered by March 2017. Confidence in Sterling exchange rates has plummeted recently and until we get some form of assurances as to how the talks may go with the European Union we could see Sterling fall even further against the Swiss Franc than its current levels.

Clearly no negotiations can start until March so until then we will see further uncertainty causing problems for the Pound vs the Swiss Franc.

EUR/CHF - Euro Swiss Franc, October 24, 2016

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EUR/CHF - Euro Swiss Franc, October 24, 2016

- Click to enlarge

Both Bank of England governor Mark Carney and deputy governor Ben Broadbent both stated recently that they are not too concerned about the value of Sterling and therefore this signals to me that we could see an interest rate cut at next month’s meeting which is due to take place during the first week of November.

Third quarter UK GDP figures are due out on Thursday this week and the period covers the quarter immediately after the Brexit vote so if this shows a fall in the figure then I think we could see some dramatic losses for GBP/CHF exchange rates. Therefore, if you’re thinking of buying Swiss Francs then it may be worth looking at doing something before the GDP release.

GBP/CHF - British Pound Swiss Franc, October 24 2016

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GBP/CHF - British Pound Swiss Franc, October 24 2016

. - Click to enlarge

FX Rates

Investors thought about the world over the weekend and decided it did not look so bad. Global stocks and bonds are higher today, helped by favorable economic data and corporate earnings.

The dollar is lower against most major and emerging market currencies. The pullback is modest. The Australian dollar is leading the majors with a 0.4% gain. The others are up less than half as much.  Among the emerging markets, the South African rand is in the post position, with almost a 0.9% gain, while the Thai baht and Mexican peso next, but up less than half as much (~0.35%).

The MSCI Asia-Pacific Index is up 0.4%. Chinese shares were up the most in the region with the Shanghai Composite gaining 1.2% to reach a nine-month high. The Communist Party leaders hold a plenum session, and there is speculation of fiscal support.

FX Performance, October 24 2016 Movers and Shakers

FX Performance, October 24 2016 Movers and Shakers

. Source: Dukascopy - Click to enlarge

Meanwhile, China’s yuan continues to slip lower, and the offshore yuan, which is only seven-years-old, is at record lower. The onshore yuan is off 1.5% this month. Eastern and central European currencies have fallen further, as has the South Korean won, Turkish lira, and Singapore dollar. Sterling is off 5.6%, while the euro has fallen 3% this month, to put the yuan’s move into perspective.

European bourses are broadly higher. The Dow Jones Stoxx 600 is up 0.5%, to one-month highs, led by financials (+1.2%) and energy (+0.5%). The 14% rise in Royal Philips corporate earnings are the energy sector. Despite Fitch cutting Italy’s credit outlook to negative, Italian bank shares are rallying 2.2% today. The bank index is at its highest since the UK referendum. Deutsche Bank shares are also up 2% today.

FX Daily Rates, October 24 (GMT 15:00)

FX Daily Rates, October 24 (GMT 15:00)

- Click to enlarge

European bonds are rallying. Portugal’s 10-year yield is off nine bp after DBRS maintained its investment credit rating and outlook. Spanish 10-year yield is five bp lower. A sufficient number of Socialists will abstain from the confidence vote, allowing Rajoy and the PP to head up a minority government and avoid going to the polls for the third time in a year. Fitch cut Italy’s outlook to negative before the weekend, but Italy’s 10-year bond yield is 2.5 bp and the premium over Germany is a tad smaller.

The Canadian dollar saw follow through selling in early Asia after the large data-driven sell-off ahead of the weekend. The US dollar spiked to almost CAD1.3380 before settling in a CAD1.3320-CAD1.3360 range. The euro, yen, and sterling are consolidating within the pre-weekend ranges. The euro held the last Friday’s low near $1.0860 but has been unable, in the European morning, to poke through $1.09. Sterling recovered from the Asian dip toward $1.2185 but ran out of steam ahead of the pre-weekend high near $1.2260. Intraday technicals warn of a push lower in North America. Dollar-yen is flat, largely in a JPY103.80 to JPY104.00 band.

FX Performance, October 24

FX Performance, October 24

- Click to enlarge

Eurozone

The eurozone flash PMI improved, which is consistent with the continued trend growth in the area. The composite PMI rose to 53.7 from 52.6, which is the best of the 2016 and well above the consensus of 52.8. Germany’s rebounded smartly. The composite rose to 55.1 from 52.7, completely recovered from the August and September pullback. Separately, we note that the latest polls suggest Merkel’s support has improved, and the better economic performance will not hurt.

 

Eurozone Markit Composite PMI October (Early Estimate: Flash)

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Eurozone Markit Composite PMI, September 2016

Source: Investing.com - Click to enlarge

Germany’s rebounded smartly. The composite rose to 55.1 from 52.7, completely recovered from the August and September pullback. Separately, we note that the latest polls suggest Merkel’s support has improved, and the better economic performance will not hurt.

Germany Composite PMI October (Early Estimate: Flash)

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Germany Composite PMI October (Early Estimate: Flash)

Source: Investing.com - Click to enlarge

The manufacturing PMI rose to 55.1 from 54.3, well above expectations and the strongest reading since Q1 14.

Eurozone Manufacturing PMI, October (Early Estimate: Flash)

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Eurozone Manufacturing PMI, October (Early Estimate: Flash)

Source: Investing.com - Click to enlarge

The services PMI jumped to 54.1 from 50.9, the single biggest monthly rise in this three-year-old time series.

Eurozone Services PMI, October (Early Estimate: Flash)

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Eurozone Services PMI, October (Early Estimate: Flash)

Source: Investing.com - Click to enlarge

France

The flash French PMI was less inspiring. The good news is that manufacturing recovered above the 50 boom/bust level for the first time since February. It averaged 48.9 in Q3 and 48.2 in Q2. In October it stood at 51.3. The service PMI fell to 52.1 from 53.3. It is the lowest since July, and just above the Q3 average of 52.0. This pushed the composite to 52.2 from 52.7.

France Manufacturing PMI October (Early Estimate: Flash)

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France Manufacturing PMI, October (Early Estimate: Flash)

Source: Investing.com - Click to enlarge

Japan

Earlier Japan reported a larger than expected September trade surplus. The balance almost always improves in September. The September trade surplus increased to JPY498.3 bln from a JPY18.7 bln deficit in August. Economists had expected exports to have deteriorated, but they improved. Exports were off 6.9% from a year ago. In August they were off 9.6%. Exports to the US fell 8.7%. Exports to China, Japan’s biggest export market, fell 10.6%, while exports to the EU rose 0.7%.

Japan Exports YoY, September 2016

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Japan Exports YoY, September 2016

Source: Investing.com - Click to enlarge

Imports fell 16.3% in September, after a 17.3% slide in August.

Japan Imports YoY, September 2016

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Japan Imports YoY, September 2016

Source: Investing.com - Click to enlarge

Separately, Japan’s flash manufacturing PMI rose to 51.7 from 50.4, for the second consecutive month above 50. It had been below that threshold since February.

Japan Manufacturing PMI, October (Early Estimate: Flash)

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Japan Manufacturing PMI, October (Early Estimate: Flash)

Source: Investing.com - Click to enlarge

United States

It is a light week for market-moving US economic data, with the highlight being the first estimate of Q3 GDP later in the week. Today’s features the Markit preliminary manufacturing PMI. However, more attention may be on Fed officials ahead of the quiet period before next week’s FOMC meeting. Today, Dudley, Bullard, Evans, and Powell speak. The views are well known, and they seem to think a rate hike this year is still appropriate barring a new shock. Evans is the dove in the group.

U.S. Manufacturing PMI October (Early Estimate: Flash)

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U.S. Manufacturing PMI October (Early Estimate: Flash)

Source: Investing.com - Click to enlarge

 

Graphs and additional information on Swiss Franc by the snbchf team.

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Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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