FX market outlook

FX market outlook

Oil slides after OPEC fails to do more; sterling drops on polls.

Sterling was one of the worst performing major currencies against the US dollar after tumbling on a recent poll showing UK Prime Minister Theresa May’s lead was falling. Oil slid on disappointment following the OPEC deal.

Investors were hoping for deeper cuts at the OPEC gathering in Vienna yesterday that also included some non-OPEC producers. A deal was reached to extend a current output cut agreement by another nine months, taking it to March 2018. This was already priced in by the markets as it was clearly telegraphed before the May 25 meeting. A failure to agree on a bigger reduction in supplies caused some disappointment to investors and led to oil prices falling. WTI oil tumbled below the key $51 a barrel level to reach $48.23 in Asian trading today.

The pound added to Thursday’s losses against the dollar when it weakened on disappointing UK GDP data. Cable fell below the key $1.2900 level to a 10-day low of $1.2866 in Asia today, recording its biggest one-day slide against the greenback since the beginning of this month. The catalyst was a YouGov poll which showed the Conservative party’s lead over Labour has been reduced. The UK general election is less than two weeks away on June 8.

The yen gained after data showed Japan’s core consumer prices rose for a fourth month in April, the longest run of gains since mid-2015. The dollar erased all of yesterday’s gains versus the yen and fell to a late Asian session low of 111.33 yen today.

The euro hovered around the key $1.1200 level after sliding from yesterday’s high of $1.1250.

The aussie extended losses against the greenback to reach a low of $0.7421 on the back of lower Dalian iron ore prices, a key export for Australia.

Gold benefitted from a broadly weaker dollar and rose in Asia to a high of $1261.90 an ounce.

For the rest of the day, focus will shift to US data on durable goods orders and GDP numbers. Meanwhile, the G7 meeting begins in Italy today, which could also attract some attention if trade protectionism will be discussed.