The surge in U.S. bond yields stalled during the morning London session, so the Greenback’s strength also got sapped.
And the euro and the pound were apparently taking advantage of that. Although positive Brexit-related rumors also helped to push the pound higher, while a comment from an ECB member appears to have attracted buyers for the euro.
As to why the Aussie and Kiwi weren’t able to bounce back, that’s probably because of the risk-off vibes in Europe. Heck, the Kiwi even extended its slide despite the Greenback’s overall weakness during the session.
- U.S. Challenger jobs cuts y/y: 70.9% vs. 13.7% previous
- Canada’s Ivey PMI report coming up
The Financial Times released a report before the morning London session even rolled around.
And according to that report, an unnamed “senior Irish official involved in Brexit talks” supposedly claimed that Ireland is supportive of British PM Theresa May’s plan of having “an all-UK customs union with the EU” since Irish officials supposedly think that “It looks like it would resolve that issue [of the border].”
That’s not the only major Brexit-related rumor floating out there, though, since a Reuters report was released during the session and it cited an unnamed “European Union source” as saying that Theresa May’s proposal for solving the Irish border issue is supposedly “a step in the right direction” and “make finding a compromise possible.”
ECB’s Rehn speaks
ECB Member and Finnish Central Bank Final Boss Olli Rehn gave a presser near the start of the session.
And he said that (emphasis mine):
“The need for extended forward guidance on monetary policy will also diminish, once inflation has reached sufficient progress towards the price stability objective.”
“As it stands, financial market expectations concerning the timing of the first interest rate rise are consistent with the Governing Council’s statements.”
That highlighted bit is rather interesting since the market is expecting a rate hike by September 2019.
And remember, the ECB’s forward guidance is that rates won’t budge “at least through the summer of 2019,” which is generally considered to mean no rate hikes until the October 2019 ECB statement (at the earliest).
Is that a hawkish hint?
Anyhow, Rehn was also asked about Italy and its effect on the ECB’s monetary policy. And Rehn answered as follows:
“The council primarily looks at the development of the whole euro zone, and firstly from the mid-term price stability target point of view.”
“Monetary policy will be done based on that, not looking at just one member state but the whole euro zone.”
Rehn is therefore implying here that the ECB is not too concerned with Italy … for now at least.
Risk aversion in Europe
The major European equity indices got slapped broadly lower during today’s morning London session, so risk aversion was clearly the dominant sentiment in Europe.
And market analysts say that the risk-off vibes in Europe were due to the recent surge in U.S. bond yields, since that fueled expectations that the Fed will continue to hike, which would naturally mean tighter credit conditions.
And that, in turn, dampened demand for defensive shares, as well as shares of companies that have relatively high debt.
- The pan-European FTSEurofirst 300 was down by 0.76% to 1,495.01
- Germany’s DAX was down by 0.26% to 12,255.80
- The blue-chip Euro Stoxx 50 was down by 0.10% to 3,386.55
U.S. equity futures were also down in the dumps, so the risk-off vibes may carry over into the upcoming U.S. session.
- S&P 500 futures were up by 0.42% to 2,919.25
- Nasdaq futures were up by 0.58% to 7,620.50
Major Market Mover(s):
The pound easily dominated its peers during the session and is also currently the best-performing currency of the day (so far).
And pound bulls can thank the Brexit-related rumors for that since the pound began finding buyers before the morning London session even rolled around, thanks to that Financial Times report. And more buyers would come out later when the Reuters report was released.
It also likely helped that the Greenback’s strength faltered when the morning London session started, thanks to the dip in U.S. bond yields.
GBP/USD was up by 48 pips (+0.37%) to 1.2991, GBP/AUD was up by 65 pips (+0.36%) to 1.8333, GBP/NZD was up by 78 pips (+0.39%) to 2.0009
The euro finished the session in second place and is currently on track to closing out the day in third place after the pound and the yen.
The euro was likely feeding off the Greenback’s overall weakness, although Rehn’s comments also apparently had a positive effect.
EUR/USD was up by 28 pips (+0.24%) to 1.1504, EUR/AUD was up by 36 pips (+0.22%) to 1.6235, EUR/NZD was up by 47 pips (+0.27%) to 1.7720
The Kiwi was the biggest loser of the session. Yes, it (barely) lost out to the broadly retreating Greenback. And we can probably blame the risk-off vibes in Europe for that.
NZD/USD was down by 3 pips (-0.04%) to 0.6492, NZD/JPY was down by 13 pips (-0.17%) to 74.14, NZD/CAD was down by 12 pips (-0.14%) to 0.8352
Watch Out For:
- 12:30 pm GMT: U.S. initial jobless claims (215K expected, same as previous)
- 1:15 pm GMT: U.S. Governor Randal Quarles will be speaking
- 2:00 pm GMT: Canada’s Ivey PMI (62.3 expected vs. 61.9 previous)
- 2:00 pm GMT: U.S. factory orders (2.1% expected vs. -0.8% previous)