Foreign Exchange Market Update
October 2, 2015
Indicative Interbank spot sell rates only as of 8:30 AM PST.
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The U.S. Dollar Spot Index was little changed at 1,212.91 as of 7:10 a.m. in London, heading for a 0.1 percent weekly decline. The index gained 0.6 percent in September and 2.8 percent during the third quarter. The U.S. dollar headed for a weekly drop amid concerns that a U.S. payrolls number following a report that showed manufacturing stagnated could scupper an interest-rate increase by the Federal Reserve this year. Anemic demand from China meant fewer factory orders in the U.S. in September. The U.S. dollar remained near its lowest level in more than a week against major counterparts as the preparation for Friday’s September employment report. A measure of global equities has dropped about 4 percent since Fed Chair Janet Yellen refrained from increasing rates on September 17, citing international uncertainty and tepid inflation. Futures put the probability of Fed liftoff by December at 44 percent, from as high as 64 percent on September 16, the day before the Fed’s latest policy decision was announced. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
British pound rose 0.6 percent to $1.5221 per U.S. dollar as of 4:32 p.m. London time, after slumping to $1.5108 Thursday. British pound was little changed at 74.05 pence per Euro, leaving it 0.3 percent weaker from September 25. British pound rebounded from a five-month low against the U.S. dollar as a U.S. Labor Department report showed employers added fewer jobs in September than analysts forecast, damping speculation the Federal Reserve could raise interest rates by year-end. British pound posted a weekly decline versus the Euro as possible a delay by U.S. policy makers would keep the Bank of England’s key rate at a record low for longer. U.K. government bonds climbed, pushing the 10-year gilt yield to a five-month low. British pound also appreciated after a report of purchasing managers showed U.K. house building expanded at the fastest pace in a year last month, giving another sign the economy is gaining momentum.
The Euro weakened 0.3 percent to $1.1159 per U.S. dollar at 6:53 a.m. of New York time. It was little changed at 134.14 per Japanese yen. The Euro weakened alongside the Japanese yen as investors turned away from haven currencies before a U.S. payrolls report that may help determine when the Federal Reserve increases interest rates. The 19-member currency headed for a third weekly decline versus the U.S. dollar, its longest losing streak since March, as stocks around the world gained.
Australia, the world’s second-largest coal exporter, expects foreign investment in the industry to decline as a slump in Chinese demand continues to put pressure on prices for the fuel. Power-station coal prices in Asia are heading for a fifth annual loss as mining companies confront a China-led slowdown in commodities demand that’s hurting profits. Australia, the world’s 12th-largest economy, is the developed world’s most China-dependent nation. With signs of an economic slowdown emerging in its biggest-trading partner and world’s No. 2 economy, concern is growing that demand for Australia’s vast resources of iron ore, coal, liquefied natural gas and other commodities will wane further.
Canadian stocks fell toward a two-year low after weak U.S. payrolls data heightened concern about economic strength in the nation’s largest trading partner. Equities in Canada dropped 1.1 percent toward the lowest since October 2013. Banks and financial services providers led declines as the rate on 10-year bonds tumbled. The Standard & Poor’s/TSX Composite Index fell 142.06 points to 13,099.83 at 10:33 a.m. in Toronto.
Japan’s currency was little changed at 120.04 per U.S. dollar and 134.11 versus the Euro. The Japanese yen was the best performer over the past three months in a basket of 10 developed-nation currencies, which gaining 5.9 percent. Concerns about China’s economic slowdown and falling commodity prices raised demand for haven assets at the expense of resource-reliant currencies. The U.S. dollar will remain supported versus the Japanese yen on prospects the Bank of Japan will ease policy as the Fed prepares to tighten this year.
The People’s Bank of China in September asked financial institutions to set aside 20 percent of China yuan forward contract sales in reserve for a year with zero interest, while the State Administration of Foreign Exchange has told banks to conduct special checks on currency trading under capital accounts. An estimated $141.66 billion left China in August, exceeding the previous record of $124.62 billion in July. The onshore China yuan, which fell 2.6 percent in August, advanced 0.3 percent to 6.3571 per U.S. dollar in September amid speculation the People’s Bank of China was intervening to support the currency. In August, the offshore China yuan traded in Hong Kong slid a record 3.48 percent and finished September up 1.36 percent at 6.3591 per U.S. dollar. Chinese financial markets are on holiday October 1-7. The offshore China yuan is at 6.3589 per U.S. dollar as of 9:11 am PST.
This market update is prepared by Cathay Bank for informational purposes only and does not constitute any form of legal, tax or investment advice, nor should it be considered an assurance or guarantee of future exchange rate movements or trends. This information is provided without regard to the specific objectives, financial situation or needs of any recipient. Cathay Bank does not make any representations or warranties about the accuracy, completeness or adequacy of this market update.