Forex Market Review (European Session) – Sterling breaks 1.32 ahead of BOE meeting – yen extends gains as North Korean risks linger
The dollar continued to trade weak during the European session with most of its peers hovering near fresh highs they reached in the Asian session. The pound and the yen extended their earlier gains, with the former hitting above the 1.32 key level against the greenback, while the latter reached the price of 107 per dollar for the first time since November 2016.
With Hurricane Irma heading towards Florida, after it devastated the Caribbean islands and while other two hurricanes have been observed moving in the Atlantic, the Federal Emergency Management Agency (FEMA) is worried whether its budget would be enough to cover additional damage, increasing the likelihood that the Congress might provide more funding during the next days.
In the meantime, markets are cautious to see whether North Korea will launch another intercontinental missile test on Saturday when it will celebrate its founding day, raising the risks of a dangerous military conflict between the US and the isolated regime. Late on Thursday, Trump argued that a military response is an “option” if North Korea continues developing its nuclear weapons.
The dollar index sank to a fresh 32-month low of 90.65 during the session, despite a fiscal policy relief on Wednesday when Trump and congressional Democrats agreed unexpectedly to raise the government’s debt ceiling but only for the next three months.
Dollar/yen bottomed at a ten-month low of 107.31 before it climbed to 107.82 as risk-off sentiment was rising among investors.
The euro paused its uptrend versus the greenback, trading at $1.2026 after it managed to break above 1.21 in Asian trading. This came after the ECB decision on Thursday to hold interest rates unchanged and provide further hints on tapering its quantitate easing program most likely in October. However, unknown sources who have knowledge on the topic said that ECB plans to cut monthly asset purchases from 60bn euros currently to 20-40bn euros from the start of 2018 for a period of six to nine months.
The pound was in focus today as it surged by 1% on the day to a more than a 1-month high of $1.3213 on the back of a weaker dollar. Upbeat manufacturing data released out of the UK on Friday provided some support to the currency as well. On a monthly basis, manufacturing production in July rose by 0.5 percentage points to 0.5%, recording the highest growth since February, while analysts had projected an increase of only 0.3%.
This comes a week before BOE policymakers gather on Thursday to decide on monetary policy. However, markets anticipate the MPC members to follow their European counterparts and keep rates steady as recent economic evidence showed that the fifth biggest economy in the world continued growing slowly relative to its European peers after it posted the lowest growth since 2012 in the first quarter. The British Chambers of Commerce said on Friday that the British economy was “treading water” ahead of the divorce day in March 2019, while it also added that since the Brexit vote the pound’s weakness did little for the exporters. The UK trade data published in the middle of the session justified this argument as the trade deficit widened by 0.05bn pounds to 11.58bn pounds, while forecasts were for the trade deficit to increase by an even bigger 0.42bn pounds.
Elsewhere, August jobs data out of Canada released today, showed the country’s economy adding 22,200 positions during the month. This was better than the 19,000 which was expected by analysts and above July’s 10,900. The unemployment rate ticked down to 6.2% from the 6.3% that was recorded in the previous month, which also coincided with economists’ expectations. August’s unemployment rate is the lowest the nation has experienced since October of 2008. The participation rate remained constant at 65.7%. On the downside, the positions added were attributed to part-timers, as full-time positions fell during the month. Another report released at the same time, showed industrial capacity utilization rising to 85.0% in the second quarter from 83.3% in first. The Canadian dollar weakened as the data went public with dollar/loonie advancing. The pair last traded 0.3% up on the day, while earlier in the day it fell to a fresh near 28-month low of 1.2060.
In commodities, oil prices were mixed. WTI crude was down by 0.65% at $48.77 per barrel while Brent was up by 0.15% at $54.63 per barrel.
Gold declined by 0.10% at $1,347.50 per ounce.