Thursday, 18 October 2018

Pound supported as Britain's May open to longer Brexit transition

LONDON (Reuters) - The British pound recovered to trade flat on Thursday after Prime Minister Theresa May confirmed she was open to discussing an extension of the transition period after Brexit.

Sterling was steady at $1.3114, after earlier dipping to $1.3076, although it briefly took a hit after data showed UK retail sales fell by the most in six months in September.

At a dinner in Brussels on Wednesday evening, May assured EU leaders she can still reach a Brexit deal. But she also said Britain was open to extending the transition period after the UK departs the European Union, although she did not think it would ever need to be used. May reiterated those comments on Thursday.

Elsa Lignos, global head of FX strategy at RBC, said an extension to the transition period made the need for a so-called backstop - a proposal aimed at avoiding the imposition of a hard border across Ireland after Brexit, and one of the thorniest issues to overcome in agreeing a deal - less likely.

“It remains to be seen if Brexiteers in her party can be persuaded to sign on,” Lignos said.

Against the euro the pound was down 0.2 percent at 87.89 pence per euro, as its losses extended after the retail sales numbers.

UK retail sales volumes dropped by 0.8 percent in September from August - a bigger fall than economists had expected in a Reuters poll - after the largest decline in food purchases since October 2015, official data showed.

A flurry of data this week, including the strongest wage growth for a decade, have briefly focused traders’ attention on the UK economy and away from Brexit negotiations, although investors say the pound remains at the mercy of the talks.

“We’ve had three data points from the UK in the last three days with only the unemployment figures providing any real support for the pound,” David Cheetham, chief market analyst at broker XTB, said.

“Despite this, sterling continues to keep calm and carry on despite the obvious Brexit threat with negotiations on this front clearly not progressing as many would’ve hoped.”

Reporting by Tommy Wilkes

Dollar perched at one-week highs on upbeat Fed

LONDON (Reuters) - The dollar rallied to a one-week high against its rivals on Thursday as upbeat Fed minutes confirmed that policymakers are likely to raise interest rates a few more times until end-2019.

While interest rate differentials haven’t played a big role in the first half of the year in predicting currency trends as trade war concerns have dominated sentiment, that relationship has begun to exert its influence again in recent weeks.

The gap between ten-year U.S. yields and its German counterparts has widened out to three-decade highs of 274 basis points and market watchers expect the spread to widen more in the coming months.

The minutes from the Fed’s Sept. 25-26 meeting showed every Fed policymaker backed raising interest rates and also generally agreed borrowing costs were set to rise further, despite U.S. President Donald Trump’s view that the tightening have already gone too far.

“The minutes confirm that policymakers are expected to raise rates more over the next year and that is helping the dollar gain and the risk off moves last night in Asian stocks is also another factor,” said Richard Falkenhall, senior FX strategist at SEB in Stockholm.

China’s benchmark stock index skidded to four-year lows, sapping appetite for risk taking with the euro down 0.1 percent against the perceived safe-haven Swiss Franc.

Interest rate futures are now pricing in an 83 percent likelihood that the Fed raises rates in December, according to the CME Group’s FedWatch Tool, the fourth hike this year. Two more increases are expected next year.

Against a basket of its rivals, the dollar gained for a third consecutive day, up 0.2 percent at 95.78.

A semi-annual report by the U.S. Treasury report released overnight refrained from naming China directly as a currency manipulator though market watchers said Washington will closely monitor the Chinese currency’s moves.

Deutsche Bank strategists termed the report “as a bit of an escalation without being too dramatic”.

The Chinese currency traded in the offshore market was trading near a three-month low against the dollar at 6.9385 yuan per dollar.

The euro changed hands at $1.1497 on Thursday, trading flat versus the greenback, after losing 0.65 percent on Wednesday. The euro has lost 2.73 percent versus the dollar over the last three weeks

The British pound was flat versus the dollar on Thursday to $1.3110 after Prime Minister Theresa May said London is willing to discuss an extension of the transition period after Britain leaves the European Union.

Reporting by Saikat Chatterjee

Wednesday, 17 October 2018

Sterling gains on labour data, no advance seen at EU summit

LONDON (Reuters) - The pound rose above $1.32 on Tuesday on stronger-than-expected labour data, but investors said doubts about a European Union summit yielding much progress on Brexit would limit the currency’s advance.

Negotiations are deadlocked over the status of the border between Northern Ireland and EU-member Ireland after Britain leaves the bloc in March.

Some traders have been unwinding short positions on sterling, seeing potential for a breakthrough at Wednesday’s summit. But no agreement is in sight.

Still, the pound jumped on Tuesday after data showed that British workers’ wages rose at their fastest pace in nearly a decade over the summer months.

It rose 0.4 percent to $1.3235, and 0.3 percent to 87.75 pence against the euro.

“The increased likelihood of the (Brexit) deal not being reached during the summit limits the positive spillover from solid UK data into GBP,” said Petr Krpata, an currency strategist at ING.

It is not clear what EU leaders will be able to agree on on Wednesday, when UK Prime Minister Theresa May will give her view of the Brexit talks.

Even if the Irish border issue is resolved, investors fear it could signal the start of another, potentially tougher battle for May with her own lawmakers, many of whom want a clean break from Europe.

Latest positioning data shows that traders have become more cautious about sterling after a recent unwinding of short positions.

Reporting by Tom Finn

Dollar gains for a second day as markets eye Fed minutes

LONDON (Reuters) - The dollar edged higher on Wednesday as a rally on Wall Street boosted risk appetite, although gains were capped before the release of Fed minutes later in the day.

Still, moves were muted in currency markets, contrary to the big gains in global stocks and drops in government bond yields in markets such as Italy.

“The dollar has been strongly correlated to risk appetite for much of this year, but in the last few days we have seen this correlation loosening a bit, suggesting markets need more strong economic data to push the dollar higher,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

Against a basket of its rivals, the dollar rose 0.1 percent to 95.15. It remains about 2 percent below a 2018 peak of near 97 hit in mid-August.

Major Wall Street indexes rose by more than 2 percent each as strong earnings indicated the U.S. economy is still expanding, despite rising interest rates and global trade-war tensions.

But market analysts warned against buying into the dollar’s strength as global financial conditions appeared to be tightening globally.

Cross-currency basis swaps in euros, yen and sterling, money market gauges of offshore dollar liquidity, have widened in recent weeks. That suggest the U.S. Federal Reserve’s rate hikes have cut into the availability of overseas dollars.

“Risk caution is warranted ... the replacement of Fed liquidity has come at the expense of tightening liquidity conditions outside the U.S.,” Morgan Stanley strategists said.

Markets will be looking for clues on the dollar’s direction and the path for U.S. interest rates from minutes of the Fed’s September meeting, due for release later on Wednesday.

Interest rate futures are pricing in a 77 percent likelihood that the Fed will raise rates in December, according to the CME Group’s FedWatch Tool. Two more increases are likely next year.

The British pound was down 0.2 percent at $1.3158 after gaining 0.25 percent on Tuesday as a crucial European Union summit got underway.

On Wednesday, the euro traded lower at $1.15575, down 0.2 percent. On Tuesday, it reached $1.1622 - its highest since Oct. 1 - before giving up its gains.

Reporting by Saikat Chatterjee

Tuesday, 16 October 2018

Dollar rises on firmer U.S. yields; yuan struggles

LONDON (Reuters) - The dollar edged higher on Tuesday as firmer U.S. Treasury yields encouraged investors to buy the greenback after a recent drop with investors growing more bullish about its short-term outlook, especially against emerging market currencies.

While the dollar has struggled to extend gains against the euro and the sterling in recent days, it has strengthened against its emerging market counterparts and pinned the Chinese yuan to a two-month low.

“The dollar’s outlook continues to be strong against emerging market currencies due to more expected U.S. rate hikes and the trade conflict between the U.S. and China,” said Piotr Matys, a currency strategist at Rabobank in London.

Against a basket of its rivals, the dollar rose 0.1 percent at 95.13. It has fallen 1.2 percent in the last eight sessions to a three-week low.

But an emerging market currency index was holding near its lowest levels in 1-1/2 years, indicating the divergence of the dollar’s performance against its peers.

The euro remained broadly on the back foot, holding around $1.1573 against the greenback after the Italian cabinet on Monday signed off on an expansionary 2019 budget to set up a showdown with authorities in Brussels over compliance with EU rules.

The New Zealand dollar advanced 0.24 percent versus the U.S. one to trade at 0.6567 as the domestic inflation rate was higher than expected in the third quarter.

The Japanese yen weakened by 0.19 percent on Tuesday and changed hands at 111.97. The yen had hit a one-month high of 111.61 on Monday.

The Swiss franc weakened 0.17 percent versus the dollar to trade at 0.9886 on Tuesday, after tacking on 0.45 percent overnight.

Reporting by Saikat Chatterjee

Sterling rises before EU summit, labour data

LONDON (Reuters) - The pound rose towards $1.32 on Tuesday as investors prepared for a European Union summit where diplomats will try to pave the way for an agreement on Brexit.

Traders have been unwinding short positions on sterling, in part because they see a growing chance of a breakthrough at Wednesday’s EU summit in Brussels.

With only six months before Britain leaves the EU, major obstacles remain to securing an agreement, including how to keep an open border between the British province of Northern Ireland and the EU member Ireland.

The pound rose 0.3 percent to $1.3197 against the dollar. It gained 0.1 percent to 87.85 pence against the euro.

Traders are also focussed on a labour market report due at 0830 GMT. It is expected to show the unemployment rate was unchanged at 4 percent in August and average earnings rose 2.9 percent, in line with the previous period, according to a Reuters poll.

“The increased likelihood of the [Brexit] deal not being reached during the upcoming EU Summit limits the positive spill-over from solid UK data into GBP,” said Petr Krpata, an currency strategist at ING.

Reporting by Tom Finn

Monday, 15 October 2018

Yen gains as geopolitical tension weighs on currency markets

LONDON (Reuters) - The yen hit a one-month high and the Swiss franc gained on Monday as rising geopolitical tension and investor anxiety about the global economy left investors skittish at the start of the week.

Equity markets fell on worries the ongoing Sino-U.S. trade dispute is hitting China’s economy, while Saudi Arabian shares tumbled on rising tensions between Riyadh and the West after the monarchy warned against trying to punish it over disappearance of a journalist.

German Chancellor Angela Merkel’s Bavarian allies suffered their worst election result since 1950 on Sunday, in a setback that raised tensions within the country’s crisis-prone national government.

“I don’t think it’s a huge political risk, but it does tell you that political risks in Europe are not going away,” said Alvin Tan, a currencies analyst at Societe Generale.

Tan said the yen and franc, both considered safe-haven currencies that attract investors when markets are in flux, had benefited as equity markets dropped, although the moves were not huge.

The yen rose as much as half a percent to 111.69, its strongest since Sept. 18. The franc also rose versus both the euro and dollar, but the gains were limited.

The Australian dollar, often seen as a barometer of global risk sentiment, shrugged off the mood and rose 0.2 percent to $0.7128 against the dollar, suggesting investors were far from panicked. The Aussie had hit a two-year low of 0.7039 on Oct. 5.

The euro nudged higher to $1.1571 against the dollar, while the dollar traded flat against a basket of currencies.

Analysts said the euro’s fortunes would be determined in part by the Italian government’s annual budget, which the cabinet is due to approve later on Monday.

Analysts expect the yen to strengthen as a downturn in equities catalyses safe-haven demand for the yen.

“Our bias is that equities will remain under pressure this week, and thus see scope for USD/JPY to ease somewhat further towards the 110 level,” a research note from Mizuho Bank said.

U.S. Treasury Secretary Steven Mnuchin said on Saturday that Washington wants to include a provision to deter currency manipulation in future trade deals, including with Japan, based on the currency chapter in the new deal to revamp the North American Free Trade Agreement.

Japanese media ran front-page stories questioning whether that would give Washington the right to label as currency manipulation any future foreign-exchange market interventions by Tokyo to curb sharp yen rises.

Sterling dropped 0.2 percent $1.3121 after warnings that Brexit talks appear to have hit an impasse. The pound also fell 0.4 percent against the euro to 88.190 pence.

Reference: Tommy Wilkes