September Commentary

A quiet month for G10 among fed moves while CNH regains some stability

EUR/USD depreciated though the start of the month before finding support around 1.1300 after setting a new low for the pair in over a year. The initiation of the move below 1.15 was attributed to a story in the Financial Times saying that the European Central Bank (ECB) was concerned about European Banks’ exposure to Turkey as the currency continued its move lower with three major European banks singled out as having heavy exposure. With US Consumer Price Index (CPI) coming out in line with expectation, coupled with the ongoing US-China trade war and US sanctions against Russia, led to extend the move on towards 1.1300 where if finally found bids.

President Trump’s comments to Wealthy Republicans at a fundraiser that he expects Jerome Powell to be a cheap money Chairman led to sharp declines in the USD helping EUR/USD to find support back above 1.1500.  Further USD pressure came towards the end of the month as the Peoples Bank of China (PBOC) announced that it would resume using an adjustment previously suspended in January to the daily pricing of the currency against the USD, known as the counter-cyclical factor.

In line with the trend observed since mid-June, USD/CNH enjoyed a very strong start to the month, as broad USD strength and soggy Chinese economic data including lags in industrial production, retail sales and fixed asset investment helped the pair trade all the way up to 6.9580 mid-month (15th of August) – 9% higher since the beginning of the yuan depreciation in mid-June. Over the course of the latter half of August, tighter capital controls imposed by the PBOC on Chinese Commercial banks combined with the resumption of Sino-US trade talks turned things around for the Renminbi, as USD/CNH fell back below 6.80, marking a 2.5% retracement from the high achieved earlier in the month. Despite China and the US imposing new trade tariffs on each other starting in September, the Renminbi actually enjoyed its first positive month against the USD since March.

The Russian Ruble suffered its worst month since April against the US Dollar, as USD/RUB appreciated by 10% to reach a new two-year high of 68.97 in the second half of August, on the back of US announcements to introduce new sanctions against Russia. Following weeks of US Dollar buying to build up FX reserves and protect the Russian economy from volatility in oil prices, the Russian central bank’s decision to suspend Ruble sales to purchase foreign currencies halted the RUB decline, but failed to lead the Russian currency to noticeable gains versus the US dollar.

EURUSD
*The true rate used below is a blend of EBS Market and EBS Direct rates, and account for outlier price submissions and mismatches
*Bubble sizes represent relative trade sizes for the period selected (2 Sept - 01 Oct 2018)
*High/Low prints are for indication only
USDCNH
*The true rate used below is a blend of EBS Market and EBS Direct rates, and account for outlier price submissions and mismatches
*Bubble sizes represent relative trade sizes for the period selected (2 Sept - 01 Oct 2018)
*High/Low prints are for indication only
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