Flash Crash

The yen surges in overnight flash crash, as sterling struggles despite upbeat manufacturing data.

Previous Day's Market Highlights

Sterling suffered its biggest fall in the last 3 weeks, falling over 1% to trade below the $1.26 level. The move was driven by ongoing fears over Brexit as well as the dollar coming under significant demand as a safe-haven currency as markets struck a risk-off tone. The pound weakened despite a stronger than expected manufacturing PMI reading, with the market overlooking this data point due to the uptick in manufacturing orders largely down to pre-Brexit stockpiling. Other safe-haven currencies also came under significant demand, with the yen gaining 0.7% to trade at its strongest level against the dollar in seven months.

Overnight, the fragility of current market sentiment was in evidence once again with a flash move in the yen sparked by further economic growth fears after Apple downwardly revised their guidance. The 1.6% rise in the yen in an illiquid market quickly led other majors lower, with the pound and euro both losing more than 1%. However, as is usual with such market events, prices quickly rebounded close to prior levels. 
Other economic data was released in line with expectations, with manufacturing PMI figures from the eurozone and the US remaining firmly in expansionary territory. Also of note were reports from Saudi Arabia that oil exports had fallen by 500k bbl per day, broadly in line with the production cuts that had been pledged by OPEC. As a result, crude prices rose steeply with Brent climbing over 5% to trade above $56bbl for the first time since 20th December.
Away from FX, European equity markets closed with modest gains despite early losses with US markets following a similar trend, closing broadly flat. The early fall in equity markets was once again due to concerns over slowing global growth, this time sparked by weak Chinese manufacturing data however the rebound later in the session came as a 'buy the dip' mentality began to creep into the market.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1042 1.1267 1.1004 2.33%
GBP/USD 1.2510 1.2839 1.2476 2.83%
EUR/USD 1.1368 1.1485 1.1269 1.88%
GBP/AUD 1.8029 1.8190 1.7291 4.94%
GBP/NZD 1.8889 1.9025 1.8117 4.77%
GBP/CAD 1.7091 1.7392 1.6700 3.98%

Today's Market Highlights

The economic calendar is quieter today, with market attention likely to begin to shift towards the US labour market report set to be released on Friday. Despite this, the major data piece is the release of US ISM manufacturing PMI figures for December, forecast to remain in expansionary territory however at a slower pace than previously. Recent manufacturing figures from the US have shown the initial signs of an economic slowdown, with some regional Fed surveys slipping into contraction territory. This could further dent risk sentiment and poses a downside risk to the dollar, with the market being particularly to any negative data at present.
Other data releases are of lower significance and unlikely to cause major volatility, however market participants are likely to keep one eye on construction PMI figures from the UK as well as the ADP non-farm employment change figure from the US. The former is unlikely to spark considerable volatility as sterling traders await fresh Brexit-related news while the latter release could give some clues regarding what to expect from the labour market report tomorrow.
No central bank speakers are scheduled to speak today, though we are set to hear from Fed chair Powell on monetary policy tomorrow afternoon. Finally, Japanese markets will be closed today for a public holiday.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP Construction PMI 52.9 53.4
1:15pm USD ADP Non-Farm Employment Change 178K 179K
3:00pm USD ISM Manufacturing PMI 57.9 59.3