Neil Davies, Head of Trading at PlutusFX, points the finger at economic data.
After what seems like an age since the ‘good ‘ol day’s’ of economic data causing volatility on the FX market, it was back this week with a vengeance.
Wednesday was the major day, with UK CPI figures kicking off the action by coming in at just 1.2% year-on-year against an expected 1.4%. This caused Sterling to devalue very quickly by around 1.3% against the Euro and 1% against the USD. However, these large moves proved to be very temporary as further data was released. Eurozone Industrial production down 1.9% year-on-year; German economic sentiment measured at -3.6; and, China CPI year-on-year falling to 1.6% with a negative Producer price index. All added to the volatility. They were followed in the afternoon with US Retail Sales month-on-month coming in at -0.3%. Such were some of the moves that EUR/USD traded over a 2% range within a 75 minute period just after lunch.
The general consensus of the data, as played out in the tumbling stock markets, is a realisation of a worldwide economic slowdown catching up on overvalued equity. The fact is that interest rates aren’t going anywhere fast. Anywhere. The fixed interest markets demonstrated this with a huge one day move, the T-Bond trading over a 2.25% range on the day, something not seen for quite some time.
The longer term winner of all this action is likely to be the safe haven USD, or anyone who likes a punt and has nerves of steel.