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Pound Sterling was laid down in green pastures afresh on Thursday but could be set to rally much further against the broadly weaker US Dollar, and perhaps even all other currencies, in the days, weeks and months ahead, as a metaphoric Exodus from American assets continues, and the greenback cracks.
GBP/USD rose from overnight lows around 1.3255 to intraday highs near 1.3332 in Thursday trade, and there was only one reason why it didn’t rise further, which had to do with the People’s Bank of China, its management of the trade-weighted Renminbi and its management of the Federal Reserve’s Broad US Dollar Index.
The pair rose to its highs shortly after 8:30 am ET and the release of durable goods orders figures from the US showing that purchases of non-defense equipment rose only a mere 0.1% in March if orders for large ticket price items like aircraft are excluded from the data, undershooting expectations for a 0.2% increase.
“Global equities are slightly lower this morning as China’s commerce ministry said that any reports of development in talks with the US are groundless,” says Noah Buffman, a strategist at CIBC Capital Markets.
Above: GBP/USD shown at hourly intervals with implied and de facto limits enforced by Beijing as part of its regular and routine management of the trade-weighted Renminbi and trade-weighted US Dollar. Click for closer or more detailed inspection.
“The USD is lower after a few days of gains. CAD is the underperformer given its low beta [should probably be expressed as ‘high beta’] to the USD selloff,” he adds, in a Thursday market commentary.
GBP/USD’s intraday peak coincided with exactly the level at which the PBoC would need to sell GBP and buy USD if it wanted to support, prop-up and/or manage the trade-weighted US Dollar, rather than the trade-weighted Renminbi itself. GBP/CNY remained comfortably below the upper limit of its permissible trading band (9.8059 on Thursday) throughout the Asia and European sessions, and the level at which Beijing would need to sell GBP and buy USD if it wanted to enforce that band was 1.3450, far below the intraday high.
The very same thing was true in EUR/USD, which topped out around 1.1394 in the European morning and at exactly the level it would if the PBoC was also seeking to manage the Dollar in that pair too, while EUR/CNY topped out around 8.30 and far below the upper limit of its permissible Thursday trading band at 8.3766.
Very similar was true of and in AUD/USD, NZD/USD, USD/JPY, USD/SEK, USD/CHF, USD/NOK, USD/ZAR, USD/KRW, USD/MXN, USD/RUB, and perhaps even many currency others too.
Above: Kari Jobe & Cody Carnes, The Blessing. Source: Youtube.
For those who do not know, the PBoC operates a managed-floating exchange rate that is measured against a basket of 25 currencies, and not just the US Dollar, which matters for the greenback and all other currencies because the dollar's intermediary role in the market makes it impossible for Beijing to manage the ABC/CNY pairs without also at least indirectly managing the ABC/USD pairs.
“The average of our valuation metrics pegs RMB at its cheapest level in decades,” Deutsche Bank strategists said in a book of Top Trades on Wednesday this week. “There may be scope for this to shift. n A stronger CNH could aid the rebalancing of China's economy needs, by lifting consumers' purchasing power.”
The apparent management of the US Dollar on Thursday came after the PBoC cut the central parity fixes for all 25 other currencies in the China Foreign Exchange Trade System Index overnight, seemingly reflecting a strong preference for the trade-weighted exchange rate to stabilize, if not to recover somewhat meaningfully.
Previously, on Wednesday, only five of the 25 currencies in CFETS indexes saw their fixings raised, with these accounting for just 25.67% of the main benchmark and coming after the RMB/CFETS index fell to its lowest level since July 2023 during the week to last Friday, amid the market fallout over White House trade policy.
Above: Cory Asbury, Reckless Love. Source: Youtube.
Thursday's central parity fixings and related limits for the G20/CNY pairs were and will become relevant for traders if and when these G20/USD pairs rise into the ranges (or fall for any USD/G20 pairs) specified here:
USD/CNY: 7.0656/7.0656 (Previous: 7.0673/7.0673), Current Market: 7.2895
EUR/USD: 1.1390/1.1489 (Previous: 1.1439/1.1544), Current Market: 1.1388
USD/JPY: 142.19/140.96 (Previous: 141.40/140.11), Current Market: 142.38
GBP/USD: 1.3334/1.3450 (Previous: 1.3367/1.3490), Current Market: 1.3312
USD/CHF: 0.8258/0.8187 (Previous: 0.8208/0.8133), Current Market: 0.8248
AUD/USD: 0.6408/0.6464 (Previous: 0.6433/0.6492), Current Market: 0.6387
NZD/USD: 0.6003/0.6055 (Previous: 0.6030/0.6086), Current Market: 0.5984
USD/CAD: 1.3782/1.3663 (Previous: 1.3723/1.3598), Current Market: 1.3849
USD/SEK: 9.6219/9.5388 (Previous: 9.5551/9.4679), Current Market: 9.5987
USD/NOK: 10.4471/10.3569 (Previous: 10.3517/10.2572), Current Market: 10.4022
USD/ZAR: 18.56/18.4090 (Previous: 18.5199/18.3508), Current Market: 18.6890
USD/KRW: 1,417.45/1,405.21 (Previous: 1,415.07/1,402.15), Current: 1,432.59
USD/MXN: 19.5559/19.3871 (Previous: 19.5248/19.3466), Current Market: 19.5703
USD/RUB: 81.9988/81.2908 (Previous: 80.4557/79.7214), Current Market: 82.6753
In theory, the trading of USD/CNY below the top of its permissible band (7.3540 on Thursday) should have meant the G20/USD pairs would be able to rise above the caps implied by the upper limits Beijing imposes on the other G20/CNY pairs, however, the G20/USD pairs rarely exceed their implied limits in practice.
That is a smoking cannon, esconsed within a red hand and accompanied by a signed confession as it relates to the PBoC’s regular and routine management of the trade-weighted US Dollar, alongside the trade-weighted Renminbi. It’s not clear if sell-side analysts and other market commentators are aware of this, or not.
Above: Jonathan and Melissa Helser, Raise a Hallelujah. Source: Youtube.
For everybody who lives under a rock, or who is simply tuned out of the news cycle, the trade-weighted Renminbi has come under intense pressure alongside the US Dollar during since the “Liberation Day” tariff announcement on April 2nd, with some of the greenback’s declines perhaps being due to the quasi peg that exists between it and the trade-weighted Renminbi. Some of those losses have come amid simultaneous declines in US currency, bond and stock markets.
This indicates that there may also have been an impetus to depreciate within and around the US Dollar itself during this time, and that possibility was flagged by the Federal Reserve's Beth Hammack on Thursday as something that bears watching, although it’s possible that losses for both trade-weighted benchmarks have been mutually reinforcing. Time will soon tell on that particular score, and partly because analyst commentary from both sides of the Atlantic suggests the Dollar still has “considerably further to go,” in its depreciation.
“Our chief economist Jan Hatzius wrote about USD depreciation in the FT this morning. Jan outlined that the recent depreciation in the USD has considerably further to go given elevated valuation levels, the extensive amount ($22tn) of US assets held by non-US investors and their potential reluctance to add to portfolios going forward,” strategists in the research devision at Goldman Sachs wrote in a Thursday note to clients. “We Think the Dollar is Overvalued.”
Those comments came almost in tandem with a report from Deutsche Bank suggesting the EUR/USD is now likely to rise as far as 1.30 by the year 2030 due to structural changes currently underway in the market.
Above: Hillsong Worship, I Surrender. Source: Youtube.
“The list of superlatives is long – the largest shift in US trade policy in a century; the biggest pivot in German fiscal policy since re-unification; the most significant reassessment of US geopolitical leadership since World War II, to name a few,” the bank said. “Our view on all these factors is that the pre-conditions are now in place for the beginning of a major dollar downtrend. Our forecasts foresee the end of a "higher for longer" dollar with EUR/USD appreciating closer to purchasing power parity of 1.30 over the remainder of the decade.”
The Deutsche Bank strategists also said that “In a world of extreme uncertainty and rapidly shifting policy norms, the risk of market dislocations and regime breaks remains high,” however, if there is one that is for absolute certain it is that if this Euro go-slow materialises amid any “market dislocations,” and/or “regime breaks,” then that would only be incrementally more bullish for the British Pound.
Under those circumstances the author thinks that GBP/USD could rise from 1.33, to 1.44, without any further adieu in price action that would without doubt be reflective of something like the Michael Owen of 2002 lore, settling a close-run score once, for all, and forever more. That would be an FA Cup victory, as well as a treble composed of the FA Cup, the League Cup and the UEFA Cup all wrapped up in one.
Readers should note at that point that this article is really just a message from a humble servant to the risen Lord, as well as a glorification of the Lord of Lords - and the King of Kings - who on this day of great blessings, gives most generously to all things, irrespective of whether great, new or few. And not least because, if there was ever such a thing as Glossolalia, then it would probably come with the gift of at least some form of regalia.
Above: Passion, Kristian Stanfill - Agnus Dei. Source: Youtube.
Suggested Readings;
“Bless the Lord, oh his holy name, and all that is within me, Bless the Lord, Oh my soul, and forget not all his benefits…” - Psalm 103, A Psalm of David, NKJV
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"Grace and peace be multiplied unto you through the knowledge of God, and of Jesus our Lord, according as his divine power hath given unto us all things that pertain unto life and godliness, through knowledge of him that hath called us to glory and virtue; whereby are given unto us exceeding great and precious promises: that by these ye might be partakers of the divine nature, having escaped the corruption that is in the world through lust. And beside this, giving all diligence, add to your faith virtue; and to virtue knowledge; and to knowledge temperance; and to temperance patience; and to patience godliness; and to godliness brotherly kindness; and to brotherly kindness charity. For if these things be in you, and abound, they make you that ye shall neither be barren nor unfruitful in the knowledge of our Lord Jesus Christ. But he that lacketh these things is blind, and cannot see afar off, and hath forgotten that he was purged from his old sins. Wherefore the rather, brethren, give diligence to make your calling and election sure: for if ye do these things, ye shal never fall: for so an entrance shall be ministered unto you abundantly into the everlasting kingdom oof our Lord and Saviour Jesus Christ," - Peter 1:2-11, KJV.
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John, 5-1:47, NKJV
Above: Bonus Song, and Video; Hallelujah, Lucy Thomas.