There was a vague popping sound coming out of the FX market in London on Tuesday evening which has continued into Wednesday. Not someone playing with the bubble wrap, just a handful of speculators vocalising their distress as a sharp 10-day rally in sterling against the dollar saw the cable rate move through the psychologically important level of 1.90.
The latest dollar rot set in soon after the release of Conference Board and Chicago Purchasing Managers’ data on Tuesday, which strengthened a sense that the Fed might be moving towards a cut in US interest rates, possibly in the first half of next year. In the hour after the data cable volume reached its highest level since the Bank of England unexpectedly raised UK interest rates in August.
Adrian Hughes, a currency strategist at Societe Generale, said the extraordinary level of business was caused by a rush to close short positions taken out against sterling in the expectation that the currency’s recent strength would prove short-lived.
With the market also having to digest news that the UAE, the second-largest Arab economy, is considering halving its holdings of dollars, the betting now is focused on just how low the dollar might go. Jobs data from the US is due out on Friday, but in the meantime market players are awaiting figures from the Institute of Supply Management at 15.00 GMT.
More weak numbers from the US and, in Britain, we could be looking at an outbreak of “Save on Christmas, shop in New York” newspaper features.
So we’ll get in quick with Alphaville’s guide ….
For him: Cartier Roadster XL Chronograph watch. Saks Fifth Avenue - $6,950, or around £3,640. Selfridges, London - £4,100.
For her: Tiffany Jazz double drop diamond earrings. Tiffany, New York - $5,700, or around £2,986. Tiffany, London - £3,950.
