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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.
Trump’s Tweets Continue Currency Manipulation Speculation Comments made Sunday by US president-elect Donald Trump on Twitter have sparked fresh speculation as to whether his administration will label China a currency manipulator once he is in office. China lodged a formal complaint to the US government after it emerged that Trump held a phone call with the President of Taiwan on Friday, in breach of decades of diplomatic protocol. “I can tell you that the Chinese side has lodged solemn representations with the relevant party on the US side both in Beijing and Washington. China has got its message across to the world as a whole with regard to Taiwan-related issues. The US side, president-elect Trump's team included, is also fully aware of China's solemn attitude on the issue,” said the Chinese Foreign Ministry spokesperson, Lu Kang, in a press conference today.
Euro Slides as Italy Rejects Constitutional Change The euro came under pressure in early Asian trading Monday as first exit polls and then results indicated a strong majority rejecting the proposed changes to the Italian constitution. The referendum was widely seen as a vote on the Italian government and Prime Minister Matteo Renzi quickly followed through on his promise by saying he would offer his resignation to the Italian president Sergio Mattarella. Early indications have the ‘No’ camp winning in the region of 60% of the vote. EUR/USD fell steadily rather than spectacularly in early Asian trading, having opened at 1.0670. It ground lower to touch 1.0508 as Renzi announced his resignation, but then bounced to 1.0550.
Liquidity Conditions “Here to Stay” – Survey A new survey of hedge funds finds that almost half of respondents believe that decreased market liquidity “is a secular shift that is here to stay”. The study was conducted by State Street in partnership with the Alternative Investment Management Association (AIMA). It finds that regulations stemming from the 2008 financial crisis, coupled with historically low interest rates and slow rates of growth in the global economy, have constrained the ability of many banks to perform their traditional roles as market makers, which in turn has impacted broader market liquidity conditions.