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The British Pound slipped further from recent highs against the US Dollar and continued to be held down by the Chinese Renminbi in Friday trade, as a wise one showed patience, while a Birdy sang “Help the People,” and Dire Straits did a rendition of “Telegraph Road.”
GBP/USD came under intense pressure from both the US Dollar and Chinese Renminbi simultaneously on Friday but remained buoyant near its intraday highs around 1.3329 nonetheless, despite the People’s Bank of China cutting the central parity fixing in GBP/CNY overnight, adding further pressure onto GBP/USD.
Meanwhile, the Swedish Krona and Japanese Yen were underperforming, while the Norwegian Krone and Canadian Dollar were outperforming heading into the London close, and despite the University of Michigan having confirmed that its 5-year ahead measure of inflation expectations rose to 4.4% in April.
“While the dollar advanced back toward those levels on Trump enthusiasm, we maintain that the record-long USD-bull run has now turned and a medium-to-long-run depreciation of the dollar is under way. This may be exacerbated by Trump and the associated uncertainties and damage to trade, but there were plenty of other factors that pointed this way prior to the tariff announcements,” says MUFG, in a Friday note.
Above: GBP/USD at monthly intervals with Fibonacci retracements highlighting long-term resistances. Click image for closer inspection.
The price action was incongruous with the headlines, and especially after China’s Commerce Ministry reportedly said there had been no trade talks with their American counterparts, contrary to earlier statements coming from the US President Donald Trump, and the reporting from some media outlets.
The reason was clear and there isn’t any doubt that this was due to the People’s Bank of China cutting the central parity fixings for 24 out of the 25 other currencies in the China Foreign Exchange Trade System Index overnight, effectively bringing itself down on top of them and despite many of the ABC/CNY pairs being nowhere near any of their respective intraday limits.
The earlier headlines purporting some form of trade talks having taken place first appeared to confirm that a worst of all worlds’ scenario coming into play in some respects, and that a best of all worlds scenario was entering the picture in certain other respects.
This is because despite all that is great and good in the world, decision markers of the American capital would appear to have at times shown enthusiasm for entering into what might have the makings of an unholy alliance, or at least that’s how it has appeared based upon some of the trade, tariff, and Ukraine headlines of late, and one that would risk giving life to a form of abomination.
Above: Birdy, Help the People. Source: Youtube.
All of this came after the PBoC lowered the upper limits of its permissible bands for GBP/CNY and EUR/CNY to 9.8059 and 8.3766, respectively, bringing them down from 9.8059 and 8.3885 on Thursday, which lowered the respective and de facto limits for GBP/USD and EUR/USD to between 1.3334 and 1.3455, and 1.1390 and 1.1494, despitte both of those GBP/USD and EUR/USD pairs repeatedly testing the tops of their implied and de facto limits on Thursday.
Meanwhile, GBP/CNY and EUR/CNY were not even close to near their respective limits on either Thursday or Friday, which is part of what reveals and confirms that what was going on was a US Dollar management exercise, and not a Renminbi management exercise.
For those tuned out of the news cycle, the trade-weighted Renminbi has come under intense pressure alongside the US Dollar 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, and vice versa.
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.
Above: Dire Straits, Telegraph Road, Source: Youtibe.
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
“Set a guard over my mouth, Lord; keep watch over the door of my lips. 4 Do not let my heart be drawn to what is evil so that I take part in wicked deeds along with those who are evildoers; do not let me eat their delicacies,”- Psalm 141:3-4, A Psalm of David