The nerves beneath

GBP:  Labour market data has the potential to impact sterling if some way off expectations. Recall, the UK is the opposite of the US, so the economy has disappointed but the labour market has held up relatively well. Both measures of unemployment rate are seen holding steady, with the narrower claimant count measure of unemployment seen falling modestly.

NZD:  The Kiwi and Aussie have parted ways, with AUDNZD moving nearly 5% lower during April and May.   We’ve seen some reversal so far this month, but on the monetary policy side is one reason why we’ve been seeing the kiwi outperform. Rates are seen on hold today, but the market is pricing for higher rates early next year and indication that this may come earlier will push AUDNZD lower once again.

Idea of the Day

There were several signs of markets trading on edge yesterday. Yields in peripheral Eurozone markets were around levels last seen two months ago in both Spain and Italy and the single currency, having turned its back on developments here, suddenly became nervous.

The dollar was also on edge regarding the prospect of the Fed ‘tapering’ bond purchases as early as next week’s meeting.   This edgy, flow driven market could well continue for the time being, with the market currently lacking a big theme, or at least one that is working out as well as yen, Aussie and dollar themes of recent weeks and months did.

This skittishness also extends to other markets, with equities off the highs and the VIX (measure of expected future volatility) also having traded higher as compared with May.   It could be a long wait for the Fed next week.

Latest FX News

EUR: Nervous trade from the single currency on Tuesday, with the rise in peripheral yield causing some nervousness early on which was subsequently shaken off.  

JPY:   Weaker in the Asia session after the sharp down move in USDJPY yesterday. Stocks are also weaker, contributing to the yen correction.

AUD: Consumer confidence, as measured on the Westpac measure, rebounded in June after the slump of the previous two months. The data did offer some support on the Aussie, which on balance was little changed in the Asia session after a brief push towards the 0.95 level.

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