Dollar edges higher, UK pound lower, equity rally holds, and bond yields decline
April 2, 2019
In relatively quiet trading overnight, the dollar edged higher versus major currencies. Equity markets are holding their recent rallies, and bond yields declined slightly. The UK pound traded lower as Brexit uncertainties grow, the cliff approaches and the clock ticks.
“There was nowhere to go but everywhere, so just keep on rolling under the stars.”
Jack Kerouac, Beat Generation poet, On the Road
April 2, 2019
EUR/USD 1.1204 GBP/USD 1.3049 USD/CAD 1.3332 AUD/USD 0.7075 USD/JPY 111.32 USD/CNH 6.7269 USD/ILS 3.6239 USD/MXN 19.1311 USD/CHF 0.9988 USD/INR 68.7425
The dollar edged higher against most currencies overnight. Aside from those for the GBP/USD, implied volatilities in the G10 currency pairs have fallen to new lows, which is fueling demand for the dollar in “carry trades”.GBP
The UK pound is weak, as the UK Parliament rejected all the Plan B options presented to it on Monday. A cross-party band of MPs has put forward a bill to prevent a “no-deal” Brexit from becoming law. The bill would require PM May to ask the EU for an extension beyond the current April 12 exit date. It will be debated tomorrow.EUR
The euro dropped after EU chief negotiator Michel Barnier said a no-deal Brexit is now more likely than ever before, but can still be avoided. He said a long extension past the April 12 deadline will have “significant risks for the EU” and “strong justification would be needed”.CAD
The Canadian dollar gave back some of yesterday’s big gains, witnessed after Canada’s surprise GDP growth in January. In a speech on Monday BoC Governor Stephen Poloz expressed confidence that Canada will emerge further from its soft patch. There are no major economic releases in Canada today.ASIA/PACIFIC
The Japanese yen is trading in a narrow range above 111. Higher UST bond yields seen yesterday pulled the USD/JPY over that key 111 level, and which will now provide good support going forward.
The Chinese yuan is little changed overnight. The PBOC has purposely held it steady as the US-China trade talks intensify. Traders are watching the USD/CNY closely for any signs of China’s reaction to the US trade demands.
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