FX market outlook

FX market outlook

Posted on Tuesday, May 23 2017 at 8:18 am GMT+0000

Sterling briefly impacted by Manchester blast; focus shifts to UK Inflation Report Hearings

Risk appetite was dampened after news of the bomb blast in Manchester that killed more than twenty people late on Monday night. Sterling weakened immediately after the reports, while safe haven assets like the yen and gold strengthened. An uncertain political climate in the US weighed on the dollar.

The pound dropped against the yen and the Australian dollar during Asian trading. It was impacted less against the greenback and the euro. Pound / yen fell half a percent from the Asian session open to drop below 144.00 yen, while pound / aussie tumbled to a three-week low of $1.7279. Cable slid to $1.2951 before rebounding to test the key $1.3000 level. The euro rose to an eight-week high of 0.8670 pounds. The impact on the markets from the attack was short-lived, as investors have become more immune to terrorist attacks over the years. Focus will shift later to the inflation report hearings at the UK Treasury Select Committee, where Bank of England Governor Mark Carney will be testifying.  This could have an impact on the pound.

Meanwhile, political controversies surrounding US President Donald Trump returned to the fore today after a Washington Post article. According to the report, Trump asked two top US intelligence officials in March to deny any collusion between Trump’s campaign and the Russian government during the 2016 election campaign.

In economic news today, Japan released flash manufacturing PMI data which came in at 52.0 in May, compared to a final reading of 52.7 in April. The weaker number slightly weakened the yen and helped pause a decline in the greenback. Dollar / yen bounced off a session low of 110.85. The dollar index hovered near six-month lows but was off the 96.67 level hit on Monday.

The euro consolidated gains made against the dollar when it rose on Monday to a high of $1.1262 after being lifted by comments from German Chancellor Angela Merkel that the euro was too weak. All eyes will be on Eurozone PMI data due today. This data set has been strong over the past seven months so upbeat numbers today could further boost the euro, heading into the ECB meeting next month. Solid incoming Eurozone data would be good news for the ECB which is looking to start unwinding its stimulus program.

Gold benefited from risk aversion and rose to a session high of $1263.63 an ounce, recording a third day of gains.

WTI oil fell back below $51 a barrel, after hitting as high as $51.40 on Monday. Oil prices are expected to remain supported ahead of the May 25 OPEC meeting where oil producers will discuss a whether a current deal to limit output will be extended for another nine months until March 2018.