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Sterling Extends Rally on Election Call Cable has extended its bounce from the earlier dip to 1.2515, hitting 1.2665 following UK Prime Minister Teresa May’s surprise general election call amidst polls showing her Conservative Party has a strong lead in the polls. The rally comes in spite of fears in some quarters that the snap poll could turn into a quasi second referendum on UK membership of the European Union with the Liberal Democrats likely to be a magnet for disaffected voters wanting to remain in Europe.
Sterling Recovers from Dip as Election Called Sterling dropped around 80 points as the market was spooked by news that UK Prime Minister Teresa May was to make a major announcement imminently, Cable falling to 1.2515 from1.2585 in a matter of minutes. Prime Minister May has surprised by calling a snap general election for June 8 in the UK, however as the announcement was made Cable rebounded strongly to the 1.2575-80 level. Market sources say the initial dip was driven by rumours that May was going to announce her resignation, however the reality of an election has apparently been taken by investors as a sign the UK may have changed tack on Brexit and prompted the rebound.
EUR/CZK Declines as Central Bank Formally Removes Floor The Czech kroner has strengthened following today’s formal end to the central bank’s programme to support EUR/CZK, which has been in place since November 2013. At today’s central bank board meeting the policy was formally discarded – as signalled by the Czech National Bank (CNB) last week. As the news was announced EUR/CZK apparently spiked to 27.15 from just above its floor at 27.00, but then declined sharply to 26.69 and continued to be under pressure as dealers anticipate a further unwinding of positions.
Mexican Peso Drops to New Low Against the US Dollar The Mexican peso dropped to a new low against the US dollar on Wednesday, in anticipation of the policies likely to be pursued under a Trump administration in the US. MXN fell more than 2% against the USD, hitting 21.619, breaking the previous record low of 21.3952 that was set three days after Trump’s election victory on November 8. As part of Trump’s election campaign, he has called for an overhaul of the North American Free Trade Agreement (NAFTA) and subsequently USD/MXN was often watched as a proxy on the election result during the presidential campaign and could be seen to fluctuate around the highly publicised presidential debates.
Euro Leaps in Thin Markets Dealers are scratching their heads over a sharp move higher in EUR/USD in early Asian trading after the pair moved 130 points in one minute, before reversing. Dealers say the move occurred just before 8.40 Tokyo time and saw the pair rise from 1.0520 to 1.0651 in a fraction over a minute, before reversing to 1.0575 over the next two minutes. There are reports of the pair trading at 1.0695, however traders spoken to professed no knowledge of the trade.
Steady as She Goes: BoE Leaves Rates Unchanged The Bank of England’s (BoE) Monetary Policy Committee (MPC) today voted unanimously to maintain Bank Rate at 0.25%. The Committee also decided to continue with the programme of sterling non-financial investment-grade corporate bond purchases totalling up to £10 billion, financed by the issuance of central bank reserves. Additionally, it will continue with the programme of £60 billion of UK government bond purchases to take the total stock of these purchases to £435 billion, financed by the issuance of central bank reserves.
Fed Raises Rates, USD Surges in Response The US Federal Reserve increased interest rates by a quarter point today, also indicating that it now expects to increase rates three more times in 2017. “In view of realised and expected labour market conditions and inflation, the committee decided to raise the target range for the federal funds rate to half to three-quarters per cent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a return to 2% inflation,” says the Federal Open Market Committee in a statement issued today.
Euro to Weaken Following ECB’s Rates Decision? The European Central Bank (ECB) has decided to hold interest rates steady, with market participants predicting further euro weakness. At today’s meeting, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40%, respectively. The Governing Council says that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.
Report Targets Citi’s Role in Sterling Flash Crash A report in the Financial Times claims a Citi trader in Tokyo exacerbated the sterling flash crash on October 7. The FT report, citing bankers and officials involved in the inquiry, says the investigation into events on that day are focusing “heavily” on the actions of the Tokyo-based Citi trader who allegedly placed multiple sell orders via the bank’s aggregator and “panicked”. Sources familiar with the matter tell Profit & Loss that while Citi’s name was prominent in the market on that day it was by no means alone.
Italian Referendum Could Spell Trouble for the Euro Yesterday’s referendum decision in Italy to reject changes to the Italian constitution, and the subsequent offer to resign on the part of Italian Prime Minister, Matteo Renzi, could spell trouble for the future of the euro, warn economic strategists. Profit & Loss reported yesterday that the euro was under pressure following the referendum decision, but on Monday it recovered. Despite this, Jason Leinwand, co-founder and CEO of FirstLine FX, thinks that the currency is overvalued given the potential political threats in Europe.