Pound, yuan firm up against US dollar

The US dollar weakens modestly as equities strengthen

The overnight session on currency markets was a quiet one, with the rise in US equities flowing through to a modestly weaker US dollar. The dollar index fell 0.23% to 93.05, leaving it near the middle of its two-month range. The pro-cyclical euro, Australian and New Zealand dollars all edged higher, but again, remain mid-range for now. The USD/JPY fell 50 points to 105.70 after Mr Suga’s anointment as the new Japan Prime Minister. However, USD/JPY lacks momentum, and further falls are likely to be limited to the 105.00 area at best.

GBP/USD rose 50 points to 1.2845 overnight, as senior UK Conservatives railed against the first passage of the Internal Markets Bill. Notably, though, GBP/USD tested and failed, at resistance at 1.2905 intra-day. That should be a warning sign that sterling faces a challenging environment now, with Brexit risks nowhere near priced into currency markets. Rallies look there to be sold in this environment, with critical support formed by the 100 and 200-day moving averages, (DMA’s), at 1.2700 and 1.2730. A daily close below this region is a harbinger of much deeper losses.

On the back of impressive Chinese data, and firm USD/CNY fixings by the PBOC, which is also maintaining tight domestic liquidity, the Chinese yuan firmed to levels last seen in early 2019 today. China Industrial Production rose to 5.6%, up from 4.8% and above the forecast of 5.1%. Retail Sales showed a gain of 0.5%, its first gain in seven months.

USD/CNY has fallen 0.30% this morning to 6.7890, having almost wholly ignored US dollar strength last week. Although slightly oversold now, USD/CNY’s momentum remains undiminished. Further CNY strength pushing USD/CNY down to the 6.6700/6.7000 regions cannot be ruled out.

Except for the GBP and CNY, currency markets continue to range trade ahead of the FOMC rate decision later this week.