Just when it seemed the British pound was finding its bearings, it suffered another wipe out on news of U.K. Foreign Secretary Boris Johnson’s resignation.
Loonie traders seem to be pricing in the odds of a dovish hike later this week while the yen fell back on a bout of risk-taking. Euro pairs seemed to shrug off more upbeat remarks from ECB head Draghi.
- U.S. consumer credit grew from $10.3B to $24.6B vs. $12.2B forecast
- ECB head Draghi: Underlying fundamentals remain solid
- Draghi: Risks to growth remain balanced, inflation to pick up
- U.K. PM May: Cabinet preparing for “no deal” Brexit situation
- U.K. Foreign Secretary Boris Johnson announces resignation
- Johnson: “We appear to be heading for a semi-Brexit”
- U.K. BRC retail sales monitor y/y down from 2.8% to 1.1%
Boris Johnson steps down
Following the earlier developments in the Brexit drama, U.K. Foreign Secretary and former London mayor Boris Johnson also tendered his resignation.
To summarize, Johnson’s letter to PM May broke down how the government is moving farther away from Brexit promises. He expressed worries about later on conceding to a “semi-Brexit” wherein the U.K. is still subject to EU rules but having no control over the system. And since he cannot support this, he concluded that he must step down.
Prime Minister May soon responded, writing that she was surprised by Johnson’s decision after productive talks with the Cabinet last Friday.
No. 10 also reiterated that they agreed on a proposal to “take back control of our borders, our laws, and our money – ending the freedom of movement, ending the jurisdiction of the European Court of Justice in the United Kingdom, and ending the days of sending vast sums of taxpayers’ money to the European Union.”
Nonetheless, May acknowledged that if Johnson is not 100% on board with this, then it is right for him to step down. She has since decided to reshuffle her Cabinet, with Jeremy Hunt now serving as Foreign Secretary.
Risk-on moves in Wall Street
The mood was a positive one over in the U.S. as equity indices closed in the green on Monday:
- Dow 30 index is up 320.11 points to 24,776.59 (+1.31%)
- S&P 500 index is up 24.35 points to 2,784.17 (+0.88%)
- Nasdaq is up 67.81 points to 7,756.20 (+0.88%)
Commodities also scored gains, with crude oil recovering from a dip on statements from China and the E.U. on upholding the nuclear deal with Iran. Keep in mind that U.S. sanctions on the country could limit its crude oil output to the global market.
U.S. bond yields are also in positive territory:
- 5-year yield is up to 2.757% (+0.27%)
- 10-year yield is up to 2.864% (+0.13%)
- 30-year yield is up to 2.968% (+0.06%)
Major Market Mover(s):
After filling the weekend gaps in the earlier session, sterling carried on its southbound route as Boris Johnson followed in the footsteps of David Davis to tender his resignation.
GBP/USD slumped from 1.3346 to a low of 1.3190, GBP/JPY dipped from 147.51 to a low of 146.15, EUR/GBP popped up to the .8900 handle, and GBP/NZD slid to a low of 1.9297.
The Loonie was also on the losers’ bench, even though there were no major reports from Canada. Analysts say that this is likely due to pricing in of dovish hike expectations for the BOC decision later on.
USD/CAD ticked higher from 1.3078 to 1.3116, EUR/CAD climbed from 1.5383 to 1.5410, AUD/CAD is up to the .9800 handle, NZD/CAD advanced to .8972.
Since traders seemed to be showing more love for the dollar on higher U.S. bond yields, strong medium-tier data, and a positive showing for equities, the lower-yielding Japanese currency was in retreat mode.
USD/JPY climbed from 110.45 to 111.02, EUR/JPY rose from 130.15 to 130.53, AUD/JPY rallied from 82.61 to the 83.00 mark, NZD/JPY is up to a high of 75.83, and CAD/JPY edged up to 84.70.
Watch Out For:
- 1:30 am GMT: Australia NAB business confidence index (previous reading of 6)
- 1:30 am GMT: Chinese CPI y/y (climb from 1.8% to 1.9%)
- 1:30 am GMT: Chinese PPI y/y (gain from 4.1% to 4.5%)
- 6:00 am GMT: Japanese preliminary machine tool orders (previous 14.9%)