Risk averse sentiment dominated throughout the trading session, with the ongoing concerns over the future growth prospects in China, together with less than impressive macroeconomic data from the US, dampening investor appetite for risk.
AUD was particularly sensitive, with sentiment for antipodean dampened by bearish comments by Goldman Sachs (NYSE:GS) on the iron sector and IMF on Chinese growth prospects. On that note, the IMF cut their growth forecast for China and now sees 2015 6.8% and 2016 6.3%. At the same time, copper prices fell amid subdued sentiment towards growth prospects in China, while Japan also posted weak data. Meanwhile, Dalian iron ore prices fell nearly 1% as demand from Chinese steel mills are said to weaken.
Elsewhere, EUR/GBP held onto the 50% retracement level of Aug 5th low to Aug 12th high in early European trade, before the upside traction by EUR/USD towards the sizeable 1.1100 option strike saw the cross stage a recovery back into minor positive territory. At the same time, GBP failed to benefit from somewhat hawkish comments by BoE’s Forbes, who said that a rate hike is needed ‘well before’ inflation reaches 2%, while departing BoE member Miles said that the case was building for a rise in Bank rate despite current low inflation.
Market participants also digested the release of the latest US Empire Manufacturing report, which came in at its lowest level since April 2009. A large part of the fall in the headline number for the month of August was driven by a fall in new orders, which fell to the lowest since November 2010, with some attributing part of this fall to recent strength in the USD. The latest release will likely put even more emphasis on any communiqué from Fed members, as market participants look for any clues as to whether the Fed will consider raising rates in September or holding off to later in the year.