FX round-up: Brazilian real keeps gaining altitude, Egypt devalues pound

‘Risk-off’ was the name of the game at the start of the week, with some market commentary referencing weaker than expected data on Chinese industrial production and retail sales over the weekend as the immediate trigger behind the weakness, although Brazil's real was one notable exception.

In parallel, news that Morgan Stanley had revised down its forecasts for world growth in 2016 and pushed back its forecast for the next rate hike from the US Federal Reserve to December of this year dominated headlines, alongside an unexpected decision by Egypt to devalue its pound.

Traders were also likely to be on the sidelines ahead of Wednesday’s interest rate decision by the Fed, which was to be followed by the Bank of England on the next day.

China’s industrial production cooled to a 5.4% year-on-year clip in January and February combined, in comparison to a 5.9% gain in December (consensus: 5.6%), China’s National Bureau of Statistics said on 12 March.

However, NBS said seasonal factors were partly to blame for the weak reading, with analysts at Capital Economics in agreement; although the think-tank added that while the recent acceleration in credit growth will boost activity in the short-term it will also add to long-run debt risks.

Dollar/yen slipped 0.20% to 113.59, while the New Zealand dollar was knocked lower by 0.93% to 0.6680. The Aussie was off by 0.75% to 0.7508 by the end of trading in London.

However, figures released by the Japanese Cabinet Office revealed a 15.0% month-on-month rise in ‘core’ machinery orders – one of the most widely-followed leading indicators for that economy - in January.

The fresh data came amid a backdrop of recent more downbeat data and survey readings pointing to a more sombre outlook for Asia’s second largest economy.

Further afield, in South America, the Brazilian real continued to gain ground versus the greenback following mass protests against the government on Sunday.

Egypt devalued its pound by almost 13% on Monday, with the central bank adding it would now move to adopt a flexible exchange rate.

The central bank sold $198.1m to local lenders at 8.85 pounds per US dollar, up from the 7.73 seen at the last sale.

That would help the Mediterranean country set an exchange rate level which better reflected the currency’s strength and value and help it to husband its foreign exchange reserves, analysts said.