TALKING POINTS – US DOLLAR, ECB FORUM, TRADE WAR, BREXIT, BRITISH POUND
- US Dollar[1] may rise as ECB forum accents Fed, G10 policy divergence
- Aussie, NZ Dollars up and Yen lower as markets digest trade war jitters
- British Pound[2] edging lower before key House of Commons Brexit vote
Currency markets settled into digestion mode in Asia Pacific trade as traders licked their wounds after yesterday’s bloodletting. The Australian and New Zealand Dollars recorded notable recoveries having plunged alongside equity prices yesterdays amid signs of an escalating Sino-US trade war[3]. The anti-risk Japanese Yen[4] edged down a bit as well as regional bourses retraced upward.
BACKGROUND: A Brief History of Trade Wars, 1900-Present[5]
The British Pound edged lower ahead of a pivotal day in the Brexit saga. UK Prime Minister Theresa May will face down pro-EU members of her own Conservative party as MPs vote on whether Parliament can veto the terms of the divorce settlement she carves out with the regional bloc, forcing renegotiation. That would essentially prevent Brexit without a deal, implicitly forcing the government into a “softer” posture.
On balance, Sterling’s weakness probably reflects the inherent uncertainty of the outcome. Traders are probably unwilling to show strong directional commitment one way or another before the votes are counted, and perhaps not even thereafter considering the BOE rate decision is due the following day. Still, anything that portends a less drastic UK/EU separation will likely be somewhat supportive for the UK unit.
Comments from the ECB Forum underway in Sintra, Portugal may also prove noteworthy. The conclave of central bank and economics
