Volatile night for currency markets as investors seek safe-havens

Today's news headlines:

  • ‘Dollar starts 2019 strong, safety bid boosts Yen’. Weak Eurozone data and Brexit woes in focus. (Reuters)
  • ‘Pound declines as fears of disorderly Brexit trigger stockpiling’. Stockpiling efforts reinforce the idea that any GBP strength will remain short-lived. (Bloomberg)
  • ‘Italy manufacturing shrinks as nation nears recession’. The Italian manufacturing sector recorded its third consecutive month of declines. (Bloomberg)
  • 'Yen rips higher after Apple warning drives flight to safety’. Tech giant’s sluggish sales in China heighten concerns of a global economic slowdown. (Financial Times)

Trading overnight has shown a significant increase in volatility, with markets clearly becoming increasingly nervous over the global trade situation. Last night, US-listed technology giant Apple posted a warning over lacklustre sales in China, causing its stock to tumble by 8% in after-hours trading. This once again hampered demand for risk, and the perceived safe-haven allure of Japan’s currency drove demand for the Yen, although thin post-holiday trading conditions may have exaggerated moves. USD/JPY plummeted from 109 to as low as 104.50, before rebounding to just below 107, although lesser traded pairs posted even more extreme movements. GBP/JPY notably plunged more than 7.0% at its worst, falling from 137.20 to 126.40 in a matter of minutes.

The British Construction Purchasing Managers’ Index (PMI) is arguably the only notable reading due from the UK today, set for publication at 9.30am GMT. Some deceleration is expected in the data, although the print is still forecast to be reside clear of indicating contraction within the sector. Given the overnight volatility seen by the Pound, attempts to price the currency correctly are likely to carry far more weight than a mid-level reading such as this.

The ISM Manufacturing print from the US is set to be released at 3pm GMT. Yesterday’s modest undershoot in the Manufacturing PMI, which posted its slowest expansion in over a year is once again underlining the issues faced by the US economy right now. Expectations are for a slowdown in today’s reading too, but as long as the decline isn’t too dramatic, the US Dollar is unlikely to be overly distracted by the move. Again, adjustments after last night’s flash crash and assessing the political risk ahead of today’s change of majority in the US Congress will arguably carry far more weight.

The US ADP Payroll survey is also set for publication at 1.30pm today, and although this is often seen as an indicator for the higher-profile Non-Farm Payrolls data, the number will be under scrutiny to see if the slower pace of growth in manufacturing is taking a toll. Expectations are for 180,000 new jobs to have been added, but any further suggestions that the bumper run for the US economy could be drawing to a close my have the ability to weigh on the US Dollar.

GBP/USD

After a steady day of Brexit-inspired selling yesterday, the Pound became embroiled in the wake of the flight for safety. Mounting political risk in the UK left Sterling on the back foot, with the Pound trading down to levels not seen since April 2017 against the US Dollar, before returning to the early December lows of around 1.2550. The market clearly remains skittish over the outlook for GBP.

EUR/USD

The Euro lost ground yesterday morning off the back of mounting fears over the slowing economy, with Italy’s manufacturing sector plunging towards recession being a particular concern. Downside pressures for the common currency against the Dollar during last night’s bout of volatility proved far more limited, and EUR/USD has already returned to levels seen around midday on Wednesday. Heightened US political risk may lend support to the Euro in the near-term.

GBP/EUR

After yesterday’s rangebound trading, the Pound lost around 1.5 cents against the Euro off the back of last night’s volatility. Although a recovery did follow, it has only been a partial one, and GBP/EUR is once again sitting close to December lows. Uncertainty over Brexit and the global demand for avoiding risk fails to make Sterling an attractive investment for many right now.