The week kicked off with one of the most volatile sessions seen in years after Asian equities closed in a sea of red as the Shanghai Composite closed the session lower by 8.5% to give back all of the YTD gains after market participants were left disappointed by the lack of action by the PBoC to ease monetary conditions further. This filtered through to FX markets as pressure weighed on the USD, with Chinese concerns exacerbating a push-back in expectations for the timing of a Fed rate lift off, particularly after last week’s FOMC meeting minutes highlighted that the central bank was already concerned about the ongoing situation in China. As such, the USD-index ends the European session firmly in the red, after falling by over 2.2% heading into the Wall St. open.
The weakness in the greenback went on to bolster the EUR, with the currency also benefitting against GBP, with BoE rate hike expectations also pushed back. As such, EUR/USD at one point broke above the 1.1700 handle, a level not seen since January.
Arguably the most notable move was seen in USD/JPY, with USD softer due to a delay in Fed rate lift off expectations, and JPY bolstered by safe haven flows, combined with interest rate differential flows. As such, USD/JPY at one point fell over 2 points in a matter of seconds ahead of the Wall St. open as participants continue to respond to the sell-off seen across the market and throughout the European session amid global growth concerns.
Finally of note, antipodean currencies also saw substantial weakness today with AUD hit given the nation's trade ties with China and dependency on metal production, a sector which has a relatively downbeat outlook in lieu of the Chinese concerns, while NZD fell in sympathy.
Looking ahead, after a session light in data today saw focus on China, tomorrow sees the release of German GDP and IFO Business climate, a host of US data including services PMI, new home sales, consumer confidence, Fed discount rate minutes and API crude oil imports as well as comments from ECB’s Constancio and any potential reaction from the PBoC.