GBP Extends Gains on Strong UK PMIs, US Dollar Lifts

Stocks, Bonds Slide; Yields Rise; AUD, NZD, EMFX Dip

Summary:

Upbeat UK Manufacturing and Services PMIs lifted the British Pound (GBP/USD) to 1.2110 from 1.2030 yesterday. Sterling outperformed its peers. UK Services PMI jumped to 53.3 from 48.7 and lifted the Composite number above 50 for the first time in 7 months.

The US Dollar edged higher. Traders interpreted the latest FOMC minutes as a signal from the Fed that it was putting the final touches on its rate hiking cycle. The DXY rose 0.22% to 103.85. The Euro (EUR/USD) dipped to 1.0646 from 1.0687 yesterday. USD/JPY rallied to 134.90 (134.20).

It was risk-off with the Aussie (AUD/USD), Kiwi (NZD/USD) and EMFX tumbling. The Australian Dollar (AUD/USD) slid to 0.6850 (0.6880). NZD/USD lost 0.78% to 0.6208.

Against the Offshore Chinese Yuan, the Greenback (USD/CNH) rallied to 6.8940 (6.8730). The US Dollar grinded higher against the Singapore Dollar (USD/SGD) to 1.3400 from 1.3370.

Bond yields rose. The US 10-year rate soared to 3.95% from 3.81% on Monday. The two-year US treasury yield climbed to 4.73% from 4.62% on Monday.

Wall Street stocks fell. The DOW lost 1.65% to finish at 33,180 while the S&P 500 was last at 4,005 (4,077), down 1.57%. Other global share markets finished lower.

Other economic data released yesterday saw New Zealand’s PPI Output increase to 0.9%, beating estimates at 0.4%, but lower than a previous 1.6%, Australia’s Flash Services PMI rose to 50.1 from 50.0. Germany’s Flash Manufacturing PMI fell to 46.5 from 47.3, missing estimates at 48.0.

Geopolitical tensions over an escalation in the conflict between Russia and the US over the Ukraine war weighed on risk appetite. US suspicions that China is considering providing military support to Russia pushed US stocks lower and lifted the Greenback. Risk aversion will keep the Dollar bid.

• GBP/USD – Sterling continued to outperform following better-than-expected PMIs. Overnight, the British Pound soared to a high at 1.2148 before easing to close at 1.2110. In choppy trading, the overnight low traded was at 1.1986.
• EUR/USD – The shared currency fell following two days of rallies to 1.0647 from yesterday’s 1.0687. Overnight, the Euro rallied to a high at 1.0698, matching yesterday’s peak before sliding in late New York. The overnight low recorded was at 1.0637.
• AUD/USD – Risk-off and an overall stronger US Dollar weighed on the Aussie Battler. Overnight, traders sold the Australian Dollar (AUD/USD) to a low at 0.6847 after soaring to an overnight high at 0.6920. The Aussie then settled to close at 0.6850 in New York, not far off its overnight lows.
• USD/JPY – Boosted by higher US bond yields, the Dollar ratcheted higher against the Japanese Yen to 135.23 overnight peak. At the close of trade in New York, the USD/JPY pair eased back to 134.90. Overnight low traded was at 134.15 in choppy trade of its own.

On the Lookout:

Today’s highlight will be the Reserve Bank of New Zealand’s meeting where authorities are expected to increase the Official Cash Rate 50 basis points to 4.75%. The RBNZ will have its Rate Statement (12 noon Sydney) and Press Conference (1 pm Sydney) following the meeting. Expect some volatile moves on the NZD/USD (Kiwi) following the results.

Data wise, Australia releases its quarterly (q/q) Wage Price Index (f/c at 1.0% from a previous 1.0%).

In Europe, Germany releases its German Ifo Business Climate. Finally, the US FOMC Meeting Minutes will be released (early tomorrow morning Sydney time at 6 am).

Trading Perspective:

Risk aversion and the likelihood that the Fed will remain on a tightening path for longer kept the Dollar bid. And will continue to do so today.

Today we can expect Asian markets to consolidate and keep the US Dollar bid. Heading into tomorrow morning’s FOMC minutes, volatility will stay elevated, providing opportunities to trade both sides of most FX pairs. Keep your currency levels fresh in your mind and get ready to rumble.

• AUD/USD – Expect the Aussie to remain soggy under the current circumstances. The Aussie Battler (AUD/USD) is still a sell on rallies. Look for immediate resistance at 0.6880 and 0.6910 to cap. On the downside, immediate support can be found at 0.6840 followed by 0.6810. Likely range today 0.6820-0.6890.
• GBP/USD – While the British Pound outperformed its peers, finishing up versus the Greenback to 1.2110 expect the topside to attract fresh sellers. Overnight high traded was at 1.2148. Look for immediate resistance at 1.2150 and 1.2180 to prevent further advances. On the downside, immediate support can be found at 1.2080, 1.2030 and 1.1980. Trading conditions will remain choppy with a likely range today of 1.2010-1.2130. Sell rallies still the way to go.
• EUR/USD – Against a bid Greenback, the Euro will stay pressurised. In overnight trade, the shared currency slid, and  finished at 1.0647 (1.0687 yesterday). Overnight high recorded for the EUR/USD pair was at 1.0698. Look for immediate resistance at 1.0670 and 1.0700 to cap any rallies. The overnight low traded was at 1.0637. Immediate support can be found at 1.0630, 1.0600 and 1.0570. Look to sell rallies on the EUR/USD pair with a likely range of 1.0620-1.0690.
• USD/JPY – The Greenback advanced against the Yen supported by stronger US bond yields, finishing at 134.90 (134.20 yesterday). In volatile trade of its own, the overnight high traded was at 135.23. Overnight low recorded for the USD/JPY pair was at 134.15. Look for the Dollar to stay firm against the Japanese currency with immediate resistance found at 135.20 and 135.50. Immediate support can be found at 134.70 and 134.50. Higher US bond yields will limit the downside of the Dollar/Yen pair. Likely range today: 134.50-135.50. Buy dips.

Have a good Wednesday ahead all. Happy trading.

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