Daily FX Update – 7th October 2016

Yet another day, yet another beating for the Pound which traded below the 1.2600 handle against the Dollar and below 1.1300 against the Euro as the day progressed yesterday but the real news came in overnight as it suffered a 700 crash against the Dollar two minutes in to the Asian open before recovering most of its losses. Potential reasons for the move include algorithmic trading, human error, an FT article citing Fran├žois Hollande saying the UK must face the consequences of Brexit and poor liquidity. Whatever the reasons are, the certainty here is that volatility is ramping up and those left unhedged and exposed to currency fluctuations, risk leaving themselves in real danger of wiping out profits. We already know sentiment is truly against the Pound, particularly as a date has now been set for Article 50 to be triggered, but the velocity of the overnight move has taken everybody by surprise, including me. The Pound has dropped 16% post rederendum and it doesn’t show any sign of letting up. As we come in to this morning, 1.2400 is already under pressure as is 1.1200 against the Euro and a sustained break of 1.2000 and 1.1000 are a very real possibility. The thing people need to be cautious of, at least until a plausible explanation is identified is that it can happen again so caution is needed. For me, this is likely to open the flood gates for GBP in the short term.

Focus today will be on this afternoon’s non-farm payroll release at 13:30. Following last month’s disappointing 151,000 jobs added, expectations this month are for 170,000. The average number of jobs created this year, whilst down on 2015 numbers, remains buoyant and whilst last month all but put a nail in the coffin of a September rate rise, a strong number today is likely to really stoke expectation of at least a 0.25bp increase in December. UK trade balance and industrial output figures will also be in focus this morning.

Have a great weekend.

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