British Pound Sterling and U.S. Dollar
Sterling rallied on Monday after a Sunday Times report said Britain was nearing a deal for leaving the European Union and that an all-UK customs arrangement would be part of it.
With talks at an impasse five months before Britain exits the European Union, investors are growing anxious and sterling is moving sharply on any news of a possible breakthrough.
The currency has faltered in seven of the 10 months of this year so far, losing as much as 3.6 percent.
But it traded up 0.3 percent on Monday to reach a 10-day high versus the dollar of $1.3065. Versus the euro it climbed to 87.33 pence, its highest since Oct. 11.
The currency was lifted by a report over the weekend that said an all-UK customs deal will be written into the legally binding agreement governing Britain's withdrawal from the European Union.
That would mean an Irish "backstop" deal to avoid a hard border between the British province of Northern Ireland and the Irish Republic, is not required, the Times reported. The issue has been the main stumbling bloc to London and Brussels agreeing a deal.
"We think EUR/GBP could be embarking on a sustainable bear trend – largely on the back of the deteriorating EUR outlook," ING's head of FX strategy Chris Turner said in a client note.
"Any news this week that the EU would hold a Brexit summit in November would be greeted positively," he added.
The pound enjoyed its best day of the year against the dollar on Thursday.
It was aided by optimism for a Brexit deal and after the Bank of England signalled more interest rate hikes could be on the way if Britain's exit from the European Union is smooth.
An agreement with Brussels on the terms of divorce would remove a major uncertainty overshadowing the economy and the BoE as it tries to curb inflation.
The British government and EU officials have this week played down hopes for an imminent Brexit deal, emphasising that while an agreement is close the two sides still have work to do.
Any agreement with Brussels would then need to win approval from British parliamentarians before Britain's scheduled departure date of March 29, a far from easy process given factions with Prime Minister Theresa May's Conservative party oppose her proposals for a Brexit agreement.
The dollar held steady against most of its major peers on Monday, supported by expectations of tighter U.S. monetary policy, while sterling gave up nearly all its recent gains as investors sought clarity around Brexit. A Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain's withdrawal from the EU had cheered investors who sent the pound to $1.3062 on Monday, the highest since Oct. 22.The dollar's index versus six major peers was steady at 96.50 on Monday.Analysts are bullish on the greenback, supported by strong economic growth and see the Federal Reserve on track to raise interest rates in December, followed by another two hikes by mid-2019.Data out on Friday showed that U.S. jobs growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years."The jobs data has reaffirmed the dollar's strength due to the rates differential factor going forward. The risk is that the markets may be caught surprised by a more hawkish Fed," said Rodrigo Catril, senior currency strategist at NAB.Ten-year U.S. Treasury yields were at 3.2 percent on Monday, having risen on Friday on the back of the jobs report."With the tight labour market starting to deliver meaningful wage growth, the Fed is on track to another quarterly rate increase at next month’s FOMC meeting. Our view remains for the ceiling of the Fed Funds Rate to increase to 2.50 percent and 3.50 percent by the end of 2018 and 2019 respectively," said Eugene Leow, currency strategist at DBS.Such a rise is expected to help the dollar firm against the safe haven Japanese yen, which traded flat at 113.22 on Monday.The dollar weakened by 0.66 percent versus the yen in the month of October as news flow around trade tensions, geopolitical risks and a global economic slowdown gave the Japanese currency a flight-to-safety boost."The dollar/yen will follow the U.S. 10-year yields higher. We don't see much downside as of now," added Catril.Currency traders will also be focussing on U.S. midterm elections on Tuesday U.S. time.Opinion polls show a strong chance that the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with President Donald Trump's Republican Party likely to hold the Senate.Despite Brexit relief supporting risk appetite in currency markets, the UK's Telegraph newspaper reported that significant hurdles still remain to be overcome.The pound retraced its intra-day high in thin Asian early trade, but was up 0.13 percent for the day. It has lost 3.7 percent versus the greenback year to date.The positive sentiment around a smooth Brexit also gave the euro a small bid in early Asian trade. However, the single currency gave up all its gains and traded flat at $1.1385.The offshore yuan traded lower versus the dollar at 6.9123.Offshore-traded yuan gained versus the greenback in the last two sessions, supported by rising hopes that trade tension between China and the United States will ease.The Australian dollar was trading 0.14 percent lower at $0.7186.Second wave of US sanctions on Iran starts MondayChina's boulevard to nowhere: The battle for influence in APEC's Pacific hostUS official denies report of possible China trade dealTrade war hopes boost euro zone bond yields
Dollar firm, sterling gives up gains after touching two-week high
Asian stocks skidded on Monday as fears of faster rate hikes in the United States and uncertainty around the Sino-U.S. trade war deterred investment in riskier assets, while sterling briefly jumped to a two-week high on hopes of an orderly Brexit.Markets are expected to be skittish ahead of U.S. congressional midterm elections on Tuesday.Opinion polls show a strong chance that the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with President Donald Trump's Republican Party likely to hold the Senate.Spreadbetters point to a subdued start for Europe with both London's FTSE and Germany Dax seen opening lower.U.S. stock futures slipped 0.3 percent after Wall Street closed lower on Friday amid concerns a trade deal between the United States and China may not be struck soon."We expect U.S.-China trade tensions to get worse before they get better," Citi analysts said in a note."Although trade growth has held steady, concerns are rising in business surveys," they added."Equity markets do not seem to be fully incorporating the risks of an escalation of tensions yet, which could have an effect on investment, sentiment, inflation, and growth."MSCI's broadest index of Asia-Pacific shares outside Japan lost 1.4 percent on Monday, slipping back towards last week's 1-1/2 year trough of 505.61 points.Japan's Nikkei stumbled 1.6 percent while South Korea's KOSPI index fell 1.4 percent.Chinese shares opened in the red with blue-chip stocks off 1.2 percent as President Xi Jinping acknowledged conditions abroad had created some challenges for the Chinese economy.Xi, however, promised to lower import tariffs and continue to broaden market access.Also clouding the outlook for world shares is the prospect of even tighter monetary policy in the United States, given robust economic data in recent months.The United States reported solid jobs growth for October, with annual wage gains at 9-1/2-year highs, further boosting expectations for a December rate rise.A similarly upbeat number back in February had sent global financial markets in a tailspin with a massive sell-off in bonds and equities, particularly in emerging markets, and a strong rally in the U.S. dollar. Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3.00 percent seen through 2019."The U.S. employment report supports our view that the Federal Reserve will raise rates three more times from now until mid-2019," Capital Economics said in a note."After that, we suspect that the cumulative effect of monetary policy tightening will start taking a toll on the US economy, forcing the Fed to end its tightening cycle and pulling Treasury yields, the US stock market, and the dollar down."Sterling ShinesSterling briefly jumped to a two-week high on Monday on growing hopes of a smooth Brexit.With just five months to go until Britain exits the European Union divorce talks are at an impasse, a Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain's withdrawal from the European Union was enough to send the pound to $1.3062, its highest since Oct. 22.May's office said the Sunday Times report was speculative, but added that 95 percent of the withdrawal agreement was settled and negotiations were ongoing.The pound pared gains to be last up 0.1 percent at $1.2989 after UK's Telegraph newspaper reported significant hurdles still remain in the Brexit negotiation process.The U.S. dollar struggled on Friday. The dollar index , which measures the greenback against a basket of major currencies, was last off 0.1 percent at 96.459.Against the safe haven yen, the dollar held at 113.25 . The euro was flat at $1.1389.In commodities, oil prices fell as the start to U.S. sanctions against Iran's fuel exports was softened by waivers that will allow some countries to still import Iranian crude, at least temporarily.U.S. crude fell 36 cents to $62.78 per barrel and Brent was last at $72.49, down 34 cents.China's boulevard to nowhere: The battle for influence in APEC's Pacific hostTrade war, spy claims cloud horizon for China airshowData leak affects thousands of wealthy Moscow residents
Asian shares sell-off as risk sentiment sours, pound pares gains