The US dollar is beginning to really feel the squeeze once more as a string of factors play into a move away from the Greenback. Firstly, the dollar is suffering in its considered safe haven status as the US/China trade talks seem to be moving in the right direction. Fed chair Powell may have been relatively positive above the US economy at his Congressional testimony yesterday, but re-iterated the FOMC’s patient stance. With Treasury yields dropping back, the dollar suffered. Powell has to go through it all again today with the House Financial Services Committee, but do not expect too many fireworks as much of his outlook will now be known. Finally the dollar is coming under pressure from a resurgent sterling as it now seems that Brexit is on either a much softer path, or perhaps even no Brexit at all. The prospect of a no deal fall out of the EU has been reduced as Prime Minister May outlined a series of votes yesterday which could officially take no deal off the table, whilst also could extend the Article 50 date from 29th March. With the Labour opposition set to back a second referendum, the prospect of perhaps the UK even remaining in the EU is now very real once more. To add into the mix, Donald Trump meets with North Korean President Kim today in Hanoi, Vietnam, although unless the announce unilateral North Korean nuclear disarmament, markets may not be all that interested, whilst the escalating tensions between India and Pakistan could be taking some risk appettie out of the market this morning.
Wall Street closed a shade lower yesterday with the S&P 500 -0.1% at 2794 with US futures also cautiously lower again today, by-0.2%. Asian markets are sitting more positively, with the Nikkei +0.5% whilst the Shanghai Composite was +0.1% higher. In Europe, markets seem to be taking a steer from the US today with FTSE futures and DAX futures both around -0.4% weaker. In forex, there is very little real direction albeit a slightly cautious look to major pairs, with mild yen outperformance hinting, In commodities, there is a lack of direction on gold still, although the slight caution is hitting silver slightly lower. Oil has seemingly found a bid overnight, with OPEC production cuts still supportive.
It is another fairly quiet day of data up until the US session with Pending Home Sales at 1500GMT which are expected to contract by -1.9% in January (after a -2.2% contraction in December). US Factory Orders are also at 1500GMT and are expected to grow by +0.9% in December (after a -0.6% decline in November). EIA Oil Inventories are at 1530GMT and are expected to show crude stocks increasing again by +2.6m barrels (after an inventory build of +3.7m barrels last week). Today is also day two of Jerome Powell’s Congressional testimonies where he sits in front of the House Financial Services Committee.
Chart of the Day – EUR/JPY
With a broader more risk positive outlook on the US/China trade talks, is the yen about to suffer? The euro has been edging more positively in recent sessions and this is manifesting in a move towards a near term brea