US Dollar and Yen climb as referendum concerns continue
10/Jun/2016 • Currency Updates•
The US Dollar and safe-haven Japanese Yen surged on Thursday, with a risk-off environment ahead of this month’s EU referendum causing investors to flee from those currencies deemed riskier.
As a result, the Euro fell back to its lowest level this week, with investors also focused again on the prospect of a prolonged period of low inflation and negative interest rates in the Eurozone. This caused the Euro to fall to its weakest position against the Yen since 2013.
Meanwhile, the US Dollar shrugged off concerns that the Federal Reserve could hold fire from hiking interest rates until its September meeting.
Another sharp decline in jobless claims in the US dispelled some concerns that the labour market in the world’s largest economy was softening following last week’s disappointing payrolls report. Financial markets are still pricing in less than a 5% chance rates will go up at next week’s FOMC meeting.
Sterling slipped again versus the Dollar, with investors remaining concerned that Britain could vote to leave the European Union in less than two weeks’ time. Traders almost completely overlooked an impressive set of trade figures which showed exports of goods in the UK enjoyed their biggest monthly increase since records began in 1998.
Despite the gains for safe-havens it was the New Zealand Dollar that proved the best performing major currency yesterday. The currency surged to its strongest position against the US Dollar in a year after the Reserve Bank of New Zealand defied some expectations by keeping its benchmark interest rate unchanged at 2.25% on Wednesday evening.
Friday looks set to be a relatively quiet day to end the week as far as economic announcements are concerned. Expectations for this month’s referendum continue to dominate trading with less than two weeks to go until the crucial vote on EU membership.
Major currencies in detail:
Concerns regarding the future of the UK in the EU sent the Pound 0.3% lower against the US Dollar yesterday.
Sterling received little help from yesterday’s trade data, despite the deficit narrowing following a surge in exports. Exports of all goods jumped by 11.2% on a month previous, with the total value of all goods exported rising to a near-record-high level and largest value recorded since June 2013.
This represents a much needed improvement in economic conditions in the UK, with output having suffered heavily over the past few months in the lead-up to the referendum.
With no economic data out in the UK today, attention will be firmly fixed on the referendum. Implied probability from the most reputable betting odds now puts the chances of a Brexit at a little over 25%.
The single currency plunged 0.7% yesterday, with investors flocking to the safer assets.
The latest trade figures in Germany showed that the trade surplus in Europe’s largest economy ballooned to a record-high level in April. An unexpected drop in imports, combined with unchanged exports, caused the surplus to increase to €24 billion from €23.7 billion.
Such weak domestic demand will do little to eliminate concerns regarding the country’s economic imbalance, with declining imports likely to suggest that economic growth could slow in Germany in the second quarter of the year.
Inflation figures in Germany this morning are expected to remain unchanged and just above flat. This would no doubt heap more pressure on the ECB to increase its economic stimulus measures in the next few months.
The US Dollar rose 0.5% against its major peers on Thursday, eliminating some of its post-payrolls losses.
Jobless claims in the US continued to paint a bright picture of the state of the US economy. Claims last week fell unexpectedly to 264,000, with the more representative four-week moving average declining by 7,500 to 26,500.
This is, in our view, inconsistent with the meagre 38,000 job creation witnessed in the US economy last month, and suggests that May’s payroll figure could prove a temporary blip.
The Reuters consumer sentiment index this afternoon is generally not a significant market mover. US Dollar traders will look to next week’s Fed meeting as the next big major event across the pond.
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