FX market outlook

FX market outlook

Posted on Thursday, July 13 2017 at 8:28 am GMT+0000

Yellen sends dollar low against majors; euro recovers; aussie firms

The dollar eased against the yen on Wednesday, following Federal Reserve Chair Janet Yellen’s dovish speech. The dollar index fell 0.23% during the Asian session today, confirming weakness in the US currency. The euro gained, erasing most of yesterday’s losses on the back of falling bond yields.

Janet Yellen started her two-day testimony to Congress yesterday with a more dovish take on monetary policy that sent the greenback plunging below the 113 level. The Fed Chair anticipates interest rates hikes to be gradual and that the Fed may not be able to raise rates by “all that much”. This induced a drop in US Treasury yields, which was subsequently reflected in dollar/yen weakening 0.7% yesterday and by a further 0.2% to 112.91 during the Asian session. Janet Yellen is scheduled to continue her testimony today, starting at 14:00 GMT.

Led by increasing Australia-US 10-year bond spread, the aussie gained today for the fifth consecutive day. Aussie/dollar rose to 0.7713 during the Asian session. Additionally, strong trade data out of China boosted the Australian dollar against its US counterpart. China’s exports in June grew 11.3% year-on-year, above the expected 8.7%, while imports rose 17.2% vs. the 13.1% forecast.

The euro recovered most of yesterday’s losses during the Asian session today. Following the Fed Chair testimony, the euro fell as yields on government bonds across the EU slid. However, the euro managed to recover during Asian trading, raising to $1.1450. Final inflation figures for the major EU economies were released ahead of the European session, confirming the flash data and hence without significant impact on the euro.

In the UK, divergence of opinions on the country’s monetary policy is remerging as Bank of England member Ian McCafferty expressed a stronger hawkish take. He said in an interview to the Times that the BoE should consider tapering its quantitative easing program earlier than planned. Mr. McCafferty, who was one of three voting members for an interest rate hike during last month’s policy meeting, confirmed that he plans to mirror his decision in the upcoming meeting. By contrast, BoE deputy governor Ben Broadbent was more dovish in his recent speech. Sterling rose for the second consecutive day against the greenback, reaching $1.2934. On the political front, the UK government is expected to publish its Brexit Repeal Bill today, a landmark law set to pave the path for UK’s exit from the EU. At the same time, the Bill will be a major area of dispute among the MPs in the coming months.

The loonie continued gaining during Asian trading, following yesterday’s significant uplift due to the interest rate hike by the Bank of Canada. Dollar/lonnie fell to 1.2730, a 13-month low, ahead of the European open.

Oil prices managed to remain above the $45 level, despite some pressure today. WTI was last trading at $45.40 a barrel while Brent was at $47.62.

Gold continued to strengthen as a weaker US currency lifted demand for the precious metal. Gold was last trading at $1,222.84 an ounce.