As Risk Aversion Hits, Focus will be on Theresa May and the Pound

Risk aversion hits the markets early, as Theresa May prepares to lay down her Brexit plans in a bid to gain support for her deal. A resignation?
Bob Mason
British Prime Minister Theresa May has accepted that parliament will vote on her plan to leave the European Union
British Prime Minister Theresa May has accepted that parliament will vote on her plan to leave the European Union

Earlier in the Day:

The economic calendar was bare through the Asian session this morning. Other than a BoJ board member Harada speech, there was very little to shift market sentiment following the European and U.S sell-off on Friday.

While there were no stats, the markets had a window of opportunity to respond to the outcome of the Robert Mueller investigation. The investigation into the U.S administration’s presidential election campaign failed to implicate the U.S President. While positive for risk sentiment, any upside in the futures market was short-lived

For the Major Pairings,

At the time of writing, the Japanese Yen was up by 0.12% to ¥119.79 against the U.S Dollar. Risk aversion provided support through the early part of the day and will likely continue to do so throughout.

In spite of risk aversion, the Kiwi Dollar held on through the early hours. At the time of writing, the Kiwi Dollar was flat at $0.6879. Support continues to come ahead of this week’s RBNZ monetary policy decision. While the RBNZ is expected to leave rates steady, 4th quarter GDP numbers supported the optimistic outlook towards the New Zealand economy.

Things were less rosy for the Aussie Dollar, however, which was down by 0.07% to $0.7078.

In the equity markets, the Nikkei was down by 3.22%, with the Hang Seng and CSI300 down by 1.81% and 1.27% respectively. The ASX200 also saw heavy losses ahead of the close, down by 1.2% at the time of writing.

Bond yields were back on the slide, with both Australian and Japanese government bond yields taking a tumble at the start of the week.

The Day Ahead:

For the EUR

It’s a quiet day ahead on the economic calendar. Business sentiment figures will provide the EUR with direction in the early part of the day.

Barring particularly impressive numbers, however, we would expect risk sentiment to be the key driver.

At the time of writing, the EUR was down 0.04% at $1.1298.

For the Pound

There are no material stats to provide direction to the Pound. Brexit will be the key driver through the day and throughout the week for that matter…

Uncertainty over what lies ahead weighed on the Pound in the early part of the day. Theresa May is due to convene later this morning with her cabinet and lay out her plans. A timetable that must include her resignation will then decide the fate of the Brexit Deal that had been voted out previously.

At the time of writing, the Pound was down by 0.08% to $1.3198.

Across the Pond

It’s a quiet start to the week, with no material economic data to provide direction to the Dollar. FOMC member chatter and risk sentiment will be the key drivers.

FOMC member Harker is scheduled to speak later today. The question will be whether there will be an attempt to calm the markets over the Treasury yield inversion. It will take more than one FOMC member to ease the pain, however, so more members could hit the news wires through the day.

At the time of writing, the Dollar Spot Index was down by 0.04% to 96.617.

For the Loonie

It’s also a quiet day on the economic calendar. Crude oil prices and risk appetite will provide the Loonie with direction through the day.

With January’s trade data not due out until Wednesday, it could be a tough first half of the week for the Loonie.

The Loonie was up 0.01% at C$1.3429, against the U.S Dollar, at the time of writing.

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