RISK AVERSION DRAGS GBP/JPY 1% LOWER

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RISK AVERSION DRAGS GBP/JPY 1% LOWER



The recent weakness of the US dollar, the decline of commodity prices and the recovery of equity indices is a relief for global investors. But does this indicate the market has turned a corner or is it just a short-term rally within a bear market?To get more news about TMGM外汇, you can visit wikifx.com official website.

US stock indexes have outperformed European and Asian recently. The benchmark US S&P 500 is down circa 13% year-to-date having been as much as 23% lower in mid-June. Yesterday, stocks were volatile after US manufacturing data from ISM topped expectations in a signal that price pressures on companies in the world's largest economy could be easing. Although central banks continue to tighten monetary policy, there has been a notable loosening in financial conditions. Expected policy rates have been trimmed back markedly and the expected peak of interest rates in multiple regions has also dropped. US rate cuts are now being priced in for 2023. However, this is mainly because recession risks are rising, which the bond market is warning with the inversion of the 10 year/2-year curve and the more significant 10 year/3-month curve on the brink.
Demand for safe haven assets has dragged GBP/USD back from a 5-week high recorded yesterday. Market jitters are largely related to China’s warning about military action if US House of Representatives Speaker Nancy Pelosi visits Taiwan as planned.

Chinese fighter jets are flying close to Taiwan ahead of Ms Pelosi’s visit as the US and Taiwan brace for a potential violent reaction. Although the visit isn’t in the official itinerary, there is speculation Ms Pelosi will meet Taiwan’s president tomorrow, which Beijing views as provocative. This could trigger a response from the US Air Force and Navy and this uncertainty alone is driving safe-haven flows into the Japanese yen, whilst hurting risk-friendly assets like stocks and currencies like the British pound.
The Reserve Bank of Australia (RBA) raised interest rates by 50 basis points to 1.85% - the highest level since April 2016 and in line with expectations. The Australian dollar has weakened though as the RBA announced that future hikes will not follow a pre-set path and instead be guided by data.

GBP/AUD has jumped nearly 1% higher already this morning stretching further north of the near 3.5-year low clocked just two weeks ago. Since April this year, GBP/AUD has oscillated within 6-cent range between A$1.72 and A$1.78. Today’s price action again highlights that rate hikes will not always result in a strong positive currency reaction.