FX market outlook

FX market outlook

Posted on Wednesday, August 9 2017 at 8:26 am GMT+0000

Safe-haven assets gain on escalating US-North Korea geopolitical turmoil

Geopolitical woes between the US and North Korea escalated overnight following announcements by the presidents of both countries. In response, safe-haven assets such as the yen, Swiss franc and gold strengthened overnight. The dollar index was moderately down ahead of European trading. The escalating situation commanded the news flow during the Asian session, overshadowing other economic developments of significance for forex markets.

North Korea announced that its leader Kim Jong Un was weighing a possibility to strike the US Pacific territory of Guam as a response to Donald Trump’s earlier comments that any threats made by North Korea will be met “with fire and fury like the world has never seen”. Trump’s remarks were provoked by Pyongyang’s threats of “physical” retaliation for new sanctions imposed by the United Nations and vocally supported by the US and South Korea. In the wake of new developments, the dollar index weakened, giving up on some of the strong gains following an upbeat JOLTS report yesterday. US job vacancies increased by 6.163 million in June instead of 5.775 million expected, exceeding the previous mark of 5.702 million and recording a multi-year high. The dollar index soared to 93.88 in yesterday’s late session but retreated to 93.62 this morning.

During the Asian session, the yen, considered a safe-haven, strengthened against the greenback, with the dollar/yen pair last trading at 110.03. The Swiss franc, another currency that has the same safe-haven appeal as the yen in times of geopolitical anxiety, strengthened with the dollar falling to 0.9688 francs. For the same reason, gold rose to $1,265.55 an ounce during late Asian session trading.

The Australian dollar weakened against its US counterpart. Aussie/dollar was last trading at 0.7891. The kiwi weakened as well under additional pressure ahead of the Reserve Bank of New Zealand meeting tomorrow. The bank is expected to be dovish about its monetary policy outlook. Kiwi/dollar was last trading at 0.7315.

The euro was slightly up against the US dollar to last trade at 1.1754, though the single currency has plunged from the highs of 1.1909 achieved last week following reports showing a strong labor market in the US.

Sterling recovered from yesterday’s low of $1.2952 to trade at $1.3018 ahead of the European session. The pound has been negatively impacted by tepid consumer spending. UK retail sales rose 0.9% annually in July, down from 1.2% the prior month. While the figure came in above expectations of 0.6% gain, it still got investors worried as UK consumers cut back on discretionary spending and budgeted for a more pricey food basket.

Weakness in oil prices continued for the third day as concerns persist over OPEC cuts. The Energy Information Administration (EIA) is due to report its crude oil inventories later in the session. WTI was last trading at $49.10 a barrel while Brent was at $52.00.