Forex today: Mixed risk sentiment, Cable stole the show dropping below the 1.25 handle

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  • Forex today was mixed, originally starting out with a risk on tone following a positive start to Tuesday in European markets that continued to trade on the belief that China and the US were making amends with respect to trade.
  • However, news wires soon flipped and markets rolled over again on a number of uncertainties, that included President Trump saying he would be “proud” to shut down the government later this month if he doesn’t get what he wants on border security. 

Meetings with Democrat leaders Pelosi and Schumer, in the presence of the press, deteriorated into a shouting match over border security. Government funding for several agencies runs out on 21 December. There was also a story titled” Trump administration to condemn China over hacking and economic espionage, escalating tensions between superpowers”, run by the Washington Post that coincided with a correction on Wall Street. 

The greenback continued to take up the default bid on negative overseas news wires that included Macron’s fiscal appeasement set to blow out 2019 French budget, as well as Brexit with May’s grip on power fading away on the threat of a no-confidence vote. MPs are calling for her to resign and she could be gone as son as this Friday. 

Rates were mixed, with the US treasury yields moving around depending on risk appetite that was ever changing. The 10 year is net 3bp higher over the day, at 2.88% in late NY trade, while the 2yr yield rose from 2.72% to 2.77%. This left the curve between the 2yr/10yr treasury approaching single digits as investors continue to bring forward end of the economic cycle. The Fed funds rate futures were little changed on the December decision but yields rose 4bp through end-2019. The Fed Funds futures market now pricing 11 bps rate CUT in 2020.

In other data, analysts at Westpac noted that the ZEW’s December survey of investors showed a slip in the current situation for Germany (to 45.3 from 58.2) but the more important leading components of expectations for Germany and, to a lesser extent, Eurozone managed to avert the recent further decline. “UK employment report for October was stronger than expected. Employment rose 79k (exp. 25k) with a solid rise in full-time employment (110k) and a 70k rise in male employment to a new record. Wage growth of +3.3% (both headline and ex-bonus) also beat expectations” However, Brexit continued to dominate as PM May faced a wall of non-response in Europe and plots to remove her back in UK. 

  • GBP/USD analysis: checkmate for PM May and Brexiteers
  • GBP/USD: Heavy on ‘vote of no confidence’ news wires, printing fresh 2018 lows below 1.2500

As for the other currencies, analysts at Westpac offered a breakdown in a snapshot of the action and relevant key data releases on the day:

 “The EUR/USD rallied to 1.1400 in the more upbeat London morning but then rolled over to 1.1320 in NY. USD/JPY nudged higher from 113.00 to 113.45. AUD/USD traded quietly, mostly just above 0.7200, while NZD/USD was a bit more lively but net almost dead flat at 0.6880. AUD/NZD ranged between 1.0455 and 1.0495.

Key notes from US session:

  • Wall Street closes mixed with conflicting sentiment surrounding trade and political grounds
  • GBP/USD: Heavy on ‘vote of no confidence’ news wires, printing fresh 2018 lows below 1.2500

 

 

 

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