On Friday, the pound sterling and euro traded lower due to a global sell-off in stock markets caused by rising oil prices and concerns in the artificial intelligence sector.
On Friday, the pound sterling traded lower, as did the euro. The reason was a global sell-off in the stock markets, linked to rising oil prices and concerns around the artificial intelligence sector. This reduced risk appetite, and the dollar did not become the main safe-haven asset.
The GBP/USD pair fell 0.13% to 1.3375. The EUR/USD pair declined 0.21% to 1.1193. Quotes are as of 07:19 according to Investing.com.
The dollar proved vulnerable to the artificial intelligence theme. The yen and Swiss franc, by contrast, benefited from the defensive capital rotation. ING currency strategist Francesco Pesole noted that movements in the currency market showed that the dollar is not yet the preferred safe-haven asset. The main beneficiaries were the yen and the franc.
Pesole added that the negative correlation between bonds and stocks is manifesting itself again, and currency markets are focusing precisely on this dynamic. The two-year SOFR swap rate fell 15 basis points to 4.50%.
According to the strategist, nervousness in the stock market could shake confidence in the continuation of the Fed’s policy tightening cycle. However, the bar for ruling out a December rate hike looks high, which should limit the scale of dollar correction.
UK retail sales in September fell 0.4% month-on-month against a forecast of a 0.1% decline. The August figure was revised upward to a 0.7% gain. Annual growth slowed to 0.8% from 2.7%. These data could have exerted moderate pressure on the pound, but its movement proved more restrained compared with the euro.
The yield spread between French and German ten-year bonds closed at 174 basis points. The OAT-BTP spread reached 50 bp. The euro’s sensitivity to the situation in France has noticeably decreased, yet the link could quickly re-emerge if the 200 bp level is breached. ING believes EUR/USD could quickly test the 14 October low at 1.1120 if turbulence in the debt market persists.