Euro, British Pound Find Buyers, but Concerns Over Brexit Fallout Continue

Forex markets remained relatively calm on Wednesday helping the Euro and British Pound hover slightly above their post-Brexit lows. The Japanese Yen, however, found some buyers as concerns continued to linger about the longer-term uncertainty in Europe and the United Kingdom.

Asian market currencies traded steady to better as investors prepared for a key meeting between the European Union’s 27 member states. The EU states, excluding Britain, will meet in Brussels today following Tuesday’s summit with the British prime minister, to discuss how to respond to the Brexit vote. They are expected to launch a period of reflection, culminating in a set of EU reform proposals to be unveiled by next March.

The results of the key meeting will likely determine the near term direction of the market. The last few days have been volatile, but the meeting will decide whether the slide in the Sterling and Euro continue.

The U.S. Dollar is under pressure for a second day, held down by a turnaround of interest rate expectations from the U.S. Federal Reserve. Having been pricing in a rate hike this summer, the U.S. financial markets are now pricing in a 10 percent chance of a cut by September, according to CME FedWatch.

If conditions in Europe and the U.K. calm then the focus will shift to the Dollar/Yen relationship. Even as stock markets and commodities recovered some of their post-Brexit losses, lessening the appeal of the perceived safe-haven yen, the U.S. Dollar fell half a percent to 102.28 Yen, leaving it close to Monday’s range. That being said, the dollar is still almost 4 percent weaker against the Japanese currency since before the referendum last Thursday.

The USD/JPY finished at 102.672, down 0.076 or -0.07%. “A sense of uncertainty and worry about risks remain in the markets,” Japanese Prime Minister Shinzo Abe said at a meeting between the government and the Bank of Japan to discuss market developments and put in place safeguards against political instability.

The Australian Dollar shrugged off a report that showed the sale of new homes in Australia declined for a second consecutive month in May, adding further evidence that the recent peak cycle has passed. The AUD/USD closed at .7428, up 0.0045 or +0.61%.

After two days of consolidation, the New Zealand Dollar posted a gain on increased demand for higher-yielding assets due to the relative calm in the financial markets. The NZD/USD was last trading at .7103, up 0.0056 or +0.79%.

The Euro also posted a small gain against the Japanese Yen as investors continued to book profits and adjust positions after last week’s sharp sell-off. The EUR/JPY finished at 113.833, up 0.151 or +0.13%.