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LMAX Exchange Challenges Conventional Wisdom on TCA A new white paper released today by LMAX Exchange seeks to offer more in-depth analysis of the cost of trading in FX markets and calls for the creation of “robust, commonly-agreed” transaction cost analysis (TCA) metrics that compare and contrast the differences between executing on firm and last look liquidity. The paper, TCA and Fair Execution: The Metrics that the FX Industry Must Use, proposes a blueprint for clients to better discern and compare the costs of trading across firm and last look venues and argues that existing TCA metrics fail to capture the nuances and value of firm liquidity.
French Election: Spot Market Calmer Second Time Round Data from CLS shows that the first round of the French presidential election caused a much stronger reaction in the spot FX market than the second round. The data shows that there was a significant spike in volumes following the first round of voting. Ahead of the vote, polls were showing a statistical tie for the top four candidates, and therefore the result was much more uncertain. Before polling was suspended by law on Friday, 21 April 2017, Bloomberg’s composite of French polls showed Emmanuel Macron in the lead with 24.5 % and Marine Le Pen in second place with 22.5% of the vote
Survey: Oil to Drive Ruble Price in 2017 The biggest issue facing the Russian ruble in 2017 is the price of oil, according to a Bloomberg survey of FX executives released today. Of those polled, the majority (or 51%), say oil prices will have the biggest effect on the currency, with 83% of the executives saying that they feel that the ruble will be more correlated to oil than emerging markets currencies this year. Of less concern in relation to the ruble were Russian Central Bank policies and geopolitics, which only 22% said they were concerned about, and just 5% of respondents said that they are concerned about US interest rate hikes.
Exploring Correlations Between the Yen and Nikkei SGX has released an article looking at whether the long-standing assumption that the Japanese yen is inversely correlated with Japanese equity indices, and what this means against the current geopolitical outlook. Conventional wisdom maintains that that a weakening yen leads to stock gains, with benchmarks such as the Nikkei 225 and the Topix Index strengthening as a result. According to the data presented by SGX, although the correlation between the Nikkei 225 Index and the Japanese yen fluctuates daily, historical evidence over the past four years shows that the inverse correlation theory holds true most of the time.
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.