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Forex today was mostly about the pound and Fed Chair Powell’s upbeat testimony which supported the US dollar index that ended the day up 0.5% on the day.  
While Powell reiterated that, “for now – the best way forward is to keep gradually raising the federal funds rate,” ‘gradual hikes’ was the main takeaway which lifted stocks and left US 10yr treasury yields ranging sideways between 2.85% and 2.87%. However, the 2yr yields, which are more sensitive to rate talk and data, climbed from 2.59% to 2.61% which was the highest level since 2008. The Fed fund futures yields continue to price 1 ½ more hikes in 2018.

For sterling, it was quite a session in NY on the back of Monday’s concession to pro-Brexit hardliners while lingering Brexit angst made for a volatile time over the voting customs union. The government survived this attempt by pro-EU Conservative MPs to change its post-Brexit trade strategy where the MPs wanted the UK to join a customs union if it didn’t agree a free-trade deal with the EU. The government won by 307 to 301, where otherwise, a customs union would likely stop the UK striking new trade deals. The pound dropped to 1.3068, by 2018 low (1.3050) during the infighting of parliament and then skyrocketed to a high of 1.3150 on the winning vote before drifting back lower and steeply to an NY close of 1.3114. Prior to that, the pound was sliding from 1.3267 after the UK employment data for May showed an expected move back to +2.7%y/y. However, unemployment remained low at 4.2%, but there was a minor +7.8k rise in jobless claims for June. In all of that, EUR/GBP ended NY 0.8883 +0.41%, within the NY range between 0.8915-0.885.

As for the euro, the DE-US yield spread widened and supported the DXY, weighing on the euro and sending the pair down below the 21-D SMA at 1.1657 to a low of 1.1648. USD/JPY was climbing from 112.25 to 112.90, closing the gap on 2018’s 113.40 high on Powell’s testimony as yen loses its safe haven status to the Swissy and the dollar.      Bulls have eyes further ahead at 114.73 as the Nov high and the 115 broad range top as key breakout points. For the Aussie, the gains inspired by RBA minutes eroded in Europe’s morning and AUD/USD lost its footing from 0.7435 to 0.7376, while the AU-US yield spreads widen. Copper and iron-ore continued to weigh as well although the pair was bouncing back to 0.7390 into the close as the dollar gave back some gains. NZD dropped from 0.6840 to 0.6769, reversing all yesterday’s post-CPI data gains.

Key notes from US session:

  • Fed’s Powell: Gradually raising rates is way to extend U.S. Economic expansion
  • Wall Street closes higher boosted by Fed’s Powell’s optimistic remarks
  • Breaking News: UK Government wins the vote on critical trade bill amendment
  • UK: Senior Tory asks Brexit referendum to be re-run amid evidence of ‘cheating’ – The Guardian

Key events ahead (Source, Westpac Banking Corporation):

  • Australia: Jun Westpac-MI Leading Index is released.
  • UK: Jun CPI is expected to rise 0.2%, while the core measure is seen to be contained, holding at a 2.1% annual pace.
  • US: Fed Chair Powell delivers his follow up testimony to the House. The Fed release their Beige Book providing a summary of conditions across the 12 districts. Jun housing starts and building permits are out. Aside from month to month volatility, the trend remains supportive of investment in the sector.