FX news and analysis

USD

The dollar gained overnight after data showed a disappointing contraction in Chinese Manufacturing. Later, however, it gave back gains after risk appetite rebounded following the release of ISM Manufacturing (Sep) which rose above expectations to 51.5 versus the 50.0 estimated and 49.6 previous. This helped dispel fears that a global slowdown was impacting on U.S output and contradicted earlier data from Markit which had shown a contraction in the sector. The Prices Paid component of the ISM rose to 58 versus 55.5 expected and 54.0 previous. Other data showed Construction Spending m/m in August fell by a slightly less than expected -0.6% versus the -0.8% drop expected. Ben Bernanke made a speech at Indianapolis on monetary policy in the afternoon which coincided with a little recovery in the greenback. The Fed Chair defended the Fed's QE policies and its choice of keeping interest rates low in the long-term, even into 2015, as the only option for helping stabilize the economy and tackling persistent unemployment.

EUR

The euro rebounded strongly after the results of the Spanish banking stress-tests showed the country's banks were in better shape than previously thought. The tests,which simulated the effect of an extreme 3-year contraction, showed that in such a situation Spanish banks would need 59bn to survive 3 bn less than the 62bn expected by the management consultancy firm hired to run the tests. Later risk appetite further rebounded on better-than-expected manufacturing data from the U.S, whilst euro-zone data was reasonably strong as well. Euro-area Manufacturing PMI (Sep) rose one basis point to 46.1 from 46.0 when no-change was expected; German Manufacturing PMI rose to 47.4 from 47.3; French Manufacturing PMI rose from 42.6 to 42.7 and Italian PMI rose, quite substantially, from 43.6 to 45.7 when a rise to 44.0 had been expected. Neither the Euro-zone Unemployment Rate or the Italian Unemployment rate rose as had been expected. Instead both remained the same at 11.4% and 10.7% respectively, although this was generally interpreted as q negative sign by most analysts.

GBP

The pound weakened on Monday after data showed Manufacturing PMI in the UK fell in September to 48.4 from 49.6 previously when 49.3 was expected. Net Consumer Credit (Aug) also fell by -0.1bn when it had been expected to rise by 0.1bn. The BOE's favoured money 'growth' metric M4 Ex IOFC's rose by 7.8% versus the 5% rise in the previous month – a positive sign. Mortgage Approvals (Aug) also rose – although by only one basis point - to 47.7k when a rise to 49.3k had been forecast. Net Secured Lending and Lending on dwellings, meanwhile actually fell to -0.3bn when it had been expected to fall to 0.8bn from 1.1bn previously, showing further reluctance from banks to lend money. M4 Money Supply (Aug) m/m fell slightly from 0.5% to 0.2%when it had been expected to remain unchanged at 0.0%, and Y/y it eased by -4.1% versus -4.6% previously.

JPY

Initially the yen rose initially after risk appetite fell on weak data from east Asia. China Manufacturing showed a disappointing rise to 49.8 when it had been expected to rise to 50.1. Later it recovered however after data from the U.S and Europe indicated a possible recovery in Manufacturing there. The Tankan Survey showed that Japanese Manufacturers had turned more pessimistic after recent weaknesses in exports. According to the BOJ the Tankan Index of Large Manufacturers showed a -3 fall versus the -4 expected and -1 previously. The Large Manufacturers Outlook showed a -3 fall versus -5 expected and 1 previously. Tankan Non-Manufacturing Index gave a reading of 5 versus 6 expected, falling from 8 previously; Non-Manu Outlook, however, fell one basis point to 5 from 6 when no-change was expected. The Tankan Large Industry Capex (3Q) rose by 6.4% when a fall to 5.0% from 6.2% previous had been expected. Corporate loans and Discounts y/y (Aug) meanwhile rose when it had fallen the previous month. On Monday, vehicle sales y/y fell by -8.1% in September from 7.3% previously. Tonight sees the release of Monetary Base (Sep).