Safe Haven Currencies Continue To Dominate Markets

23 September, 2015

Simon Eastman

“A safe haven currency is a currency investors denominate their assets in, for the purpose of protecting their investments from uncertainties due to elevated economic, financial, political or natural risks”

Tuesday was yet another day where investors shied away from riskier currencies as concerns rose ahead of a speech by Mario Draghi due after lunch today.

A revised drop in EU inflation in August caused concern among investors, sparking a selloff in the single currency leading to a near one cent gain by the USD against the euro and more significantly a push towards safe haven currencies like the US dollar and the Japanese yen. The concern is lower inflation will add further credence to the ECB’s hinted policy stance we heard earlier in the month when Mario Draghi suggested they could wield the QE sword again, if things didnt improve. The fact he is giving a speech this afternoon is leading people to speculate the contents of said speech, where we could see further indications the ECB will increase and lengthen their current QE program. One would expect if this happens, we could see the euro weaken, although how much was priced in yesterday is debateable, along with the fact despite the concern, the pound lost ground anyway.

The flight to safe haven trading saw the pound suffer considerably against the US dollar on Tuesday, with a near two cent gain by the greenback, giving some of the lowest rates for sending money to America in some time. The pound surprisingly also fared badly against the euro, losing a cent over the day’s trading. This was put down to the poor public sector net borrowing figure which came in well over the expectations. From the previous month of a negative spend, the expected figure for August was £8.65 billion borrowed, when it actually came out at £11.3 billion. With nothing else of any note released on Tuesday, traders had nothing else to go on, apart from this and risk aversion over the upcoming speech.

Today we have got a few stats to contend with ahead of Mario Draghi ‘s speech with German and EU manufacturing and services PMI. The speech is at 2pm just after Canadian retail sales. The Swiss SNB quarterly bulletin also comes out at 2pm ahead of US manufacturing PMI. Overnight we head down under for the release of Kiwi import/export and trade balance figures. With yesterday’s trading direction in mind, those with a euro purchase to make, may be prudent to speak to one of the team this morning rather than risk further sterling losses over the day.