FX Rate News

The pound fell against the dollar and euro on Thursday, on track to end its longest winning streak against the U.S. currency in 2-1/2 years as Brexit-related concerns and speculation about negative rates weighed on sterling again.

The pound had risen 3.9% against the dollar in 10 consecutive days of gains starting on May 28 – its longest winning streak since January 2018.

Analysts say it is behaving like a “risk currency”, in that it strengthens when improving market sentiment weakens demand for the safe-haven dollar.

“Sterling has been rallying against the U.S. dollar. While we see specific reasons for an appreciation of the pound, the move underlines the broader vulnerability of the U.S. dollar, especially as fears over COVID-19 subside,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

But this trajectory looked set to end on Thursday, as the pound changed course and fell back below $1.27.

The dollar bounced against riskier currencies after the U.S. Federal Reserve’s economic outlook spooked investors.

Versus the dollar, the pound fell as much as 0.8% on the day to $1.2651 at 0710 GMT, having risen to a three-month high above $1.28 on Wednesday. By 1025 GMT it was down 0.5% at $1.2687, having eased some losses as the dollar’s gains wore off.

Against the euro, the pound fell overnight, then steadied in early London trading. By 1025 GMT it was at 89.70 pence, down around 0.5% on the day..

The market has its largest net short speculative position on the pound since November 2019, as Brexit and speculation about negative rates pose downside risks.

Britain has left the European Union but the main terms of its membership remain in place during a transition period until the end of 2020, by when both sides hope to negotiate a new trade deal.

“Sterling on its back foot and a weak close today could point to a consolidation toward 1.2500, with the prospect of tough Brexit negotiations stretching out from here,” John Hardy, Saxo Bank’s head of FX strategy, wrote in a note to clients.

Britain has until the end of the month to request an extension to the transition period. A fourth round of Brexit negotiations ended with little progress.

The EU’s Brexit negotiator, Michel Barnier, urged London to adjust its demands on Wednesday, saying Britain was seeking a trading relationship with the EU that was too close to that of a member.

A Reuters poll of more than two dozen economists gave a median forecast for an 18.4% month-on-month plunge in Britain’s gross domestic product in April – although there was an unprecedented range of views.

The dollar nursed losses against most currencies on Wednesday amid some speculation the U.S. Federal Reserve could take steps to curb a recent rise in bond yields at its policy meeting.

The Australian and New Zealand dollars pulled back slightly against the greenback but sentiment remained positive as economic activity resumes in both countries following the lifting of coronavirus restrictions.

The main focus is a Fed policy meeting later on Wednesday. While no major changes are expected, recent rises in yields have pushed up the dollar due to increasing signs the U.S. economy is stabilizing, but a full-fledged recovery  from the coronavirus outbreak is still distant.

Some analysts are playing down the chance the Fed will adopt yield curve control to guide 10-year Treasury yields lower, but uncertainty about the outcome of the Fed meeting could keep the dollar under pressure.

“The Fed can afford to wait and see on yield curve control because the U.S. economy has gotten past the crisis phase and only just entered the healing phase,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“The markets got overly optimistic and are adjusting lower, but this is a good chance to buy the dollar on the dip.”

The dollar was little changed at 107.72 yen on Wednesday in Asia following a 0.6% decline in the previous session.

Against the British pound, the greenback traded at $1.2732, close to a three-month low.

The dollar bought 0.9512 Swiss franc on Wednesday in Asia after falling 0.7% on Tuesday.

The yield on benchmark 10-year Treasury notes was little changed at 0.8270% on Wednesday. Long-term Treasury yields fell on Tuesday and the yield curve flattened slightly as traders adjusted positions before the Fed meeting.

U.S. central bankers on Wednesday will also publish their first economic projections since the coronavirus pandemic set off a recession in February.

Estimates are expected to signal a collapse in output this year and near-zero interest rates for the next few years.

The Australian dollar pulled back from an 11-month high to trade at $0.6958, while the New Zealand dollar fell from its strongest level since late January and settled at $0.6961.

The Antipodean currencies have been on a stellar run against the greenback due to hopes for economic recovery, prompting some investors to book profits.

Some traders are worried about a deterioration in diplomatic relations between Australia and China, which has also weighed on the Aussie.

Elsewhere in Asia, the Chinese yuan and the Korean won drifted higher against the dollar, but trading was subdued overall as investors avoided big moves before the Fed’s meeting.

The euro traded at $1.1340. Against the pound, the common currency bought 89.10 pence, on course for a second day of gains.

Concerns about progress in trade talks between Britain and the European Union continue to hamper both the euro and the pound.

The EU’s chief Brexit negotiator, Michel Barnier, is scheduled to speak later on Wednesday, which may yield details that will help determine whether market sentiment will improve.

The U.S. dollar fell and commodity currencies gained on Monday, as risk appetite increased on optimism about recovery from the coronavirus pandemic amid a blockbuster May U.S. jobs report last Friday.

The safe-haven Japanese yen rose against the dollar, reversing losses the past several days as risk sentiment gained with growing recovery hopes.

“There has been this unwinding of negativity since the last week of May, particularly negative U.S.-China bets,” said Erik Bregar, head of FX strategy, at Exchange Bank of Canada in Toronto.

Commodity currencies such as the Australian, New Zealand, and Canadian dollars were well-bid. The New Zealand dollar, for one, climbed to its highest in four months after New Zealand said it had stopped transmission of the coronavirus within the country.

New Zealand Prime Minister Jacinda Arden on Monday said the country would lift all virus-containment measures apart from border controls, making it one of the first countries to do so.

But as the United States and economies around the world reopen, there have been nagging doubts as to where the recovery is headed.

“The UK, for instance, plans to reopen and one of the things to consider is Brexit,” said Juan Perez, currency trader at Tempus Inc in Washington. “Once we establish that Brexit is one of those 2019 issues that needs to be resolved, we could see the major rally in the euro come under pressure because the market may focus once again on what type of partnership Europe would have with the UK,” he added.

In afternoon trading, the dollar index dipped 0.1% to 96.641 in choppy trading, after having gained overnight.
The dollar fell sharply against the yen, down 1.1% at 108.33 . It also dropped 0.6% against Swiss franc, another safe haven, to 0.9566.

The euro was higher against the dollar despite data showing German industrial output plunged the most on record in April as the pandemic forced companies in Europe’s largest economy to scale back production.

The euro was last up 0.2% at $1.1303. It reached a three-month high of $1.1384 last week after the European Central Bank announced it was expanding its stimulus program.

The New Zealand dollar rose 0.8% versus the greenback to US$0.6560, earlier hitting a high of US$0.6564, its strongest since late January. The Australian dollar also rose 0.7% to US$0.7017, with the Canadian dollar also rising, trading 0.4% higher at C$1.3366 per U.S. dollar.

Investors are now focused on the U.S. Federal Reserve policy meeting this week. The Fed will need to balance signs that economic fallout from the pandemic is past its worst against evidence the virus itself is not yet under control.

The U.S. dollar fell against the Antipodean currencies and the British pound after surprising improvement in U.S. labor market data bolstered expectations for economic recovery, which reduced safe-harbor demand for the greenback.

The Australian and New Zealand dollars both rose to their strongest since January after data showed a smaller-than-expected fall in Chinese exports, which supports commodity currencies.

In contrast, the U.S. dollar traded near its highest in more than two months against the yen, supported by recent gains in long-term Treasury yields as investors await the outcome of a two-day U.S. Federal Reserve meeting ending on Wednesday.

Sentiment has improved dramatically in the currency market as traders focus on signs of a rebound from the coronavirus outbreak as economies reopen from lockdowns, which has hurt the dollar and driven money into so-called risk-on trades.

“Commodities and emerging market currencies are clearly finding it easier to rise against the dollar on hopes of economic recovery, but it is a different story when it comes to the yen,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“For dollar/yen the focus is more on yields, which is pushing the currency pair higher.”

Japan’s economy shrank less than initially estimated in the first quarter due to the coronavirus outbreak, revised data showed earlier on Monday, but the yen took the data in its stride.

The Australian dollar traded at $0.6971, approaching its firmest since Jan. 2.

The New Zealand dollar rose to $0.6537, the highest since Jan. 29.

New Zealand has no active cases of Covid-19 in the country for the first time since Feb. 28, the health ministry said in a statement on Monday.

New Zealand will announce later on Monday whether it will remove all remaining social distancing and economic restrictions, barring border controls.

Against the pound, the dollar fell 0.25% to $1.2705 in Asia on Monday, close to its lowest since March 12.

The dollar traded at 109.49 yen, close to a two-month high set on Friday.

Underpinning the dollar was a surprising recovery in U.S. employment in May after the economy suffered record job losses in April, data showed on Friday.

The jobless rate also fell to 13.3% last month from a post-World War Two high of 14.7% in April, offering hope that the world’s largest economy is starting to stabilize after the pandemic triggered a wave of job cuts.

Some investors may avoid making big trades before the Federal Reserve meeting ending on Wednesday to see how Chairman Jerome Powell views a recent rise in 10-year Treasury yields and a steepening in the yield curve.

The onshore yuan was little changed at 7.0863 per dollar after exports from China, the world’s second-largest economy, fell less in May than the market expected, data showed on Sunday.

The pandemic first emerged in China late last year and has caused a sharp contraction in global economic activity, but many traders are now focused on the pace of recovery in the second half of this year.

Some analysts said there are still many risks to the outlook, including diplomatic tension between the United States and China, and the U.S. presidential election later this year.

Net short U.S. dollar positioning fell to $8.17 billion in the week ended June 2 from $8.6 billion the previous week, according to U.S. Commodity Futures Trading Commission data released on Friday, which may discourage some investors from selling the dollar further.

The euro traded at $1.1296 in Asia on Monday. The common currency is riding a wave of optimism after the European Central Bank said last week it will increase bond purchases to help the bloc’s weakest economies.

Sentiment will face a test later on Monday with the release of data forecast to show that German industrial output fell the most on record in April.

Sterling hovered around $1.26 on Wednesday after rising to a one-month high against a broadly weaker dollar as Britain showed signs it might be willing to compromise on sticking points to reach a Brexit deal.

The dollar fell against most currencies as investors pondered what the potential fallout might be from the mass protests against racism spreading across the United States. And prospects for more government stimulus and a global economic recovery emboldened investors to step up holdings of riskier assets.

Sterling continued to be supported by signs that Britain and the European Union might be able to reach a compromise on fisheries and trade rules as the two sides launched a fourth round of Brexit virtual talks this week to try to secure a free trade deal.

ING analysts said in a note to clients, however, that the rally could be short-lived as Brexit continues to be a “major headache for the pound.”

“GBP has enjoyed some temporary out-performance on reports of more flexibility in the UK Brexit position, but we doubt GBP can hold onto gains,” they said.

Against a weakening dollar, the pound touched $1.2608 around 0700 GMT, its highest since April 30. It was last at $1.2580, up 0.2% on the day.

Versus the euro, sterling lost 0.1% to 89.07 as the pound is still weighed down by many factors, including Brexit-related risks and speculation about negative rates.

Britain’s COVID-19 death toll neared 50,000 on Tuesday, confirming its place as one of the world’s worst hit countries.

The dollar was on the back foot on Tuesday as investors maintained their hope in a global economic recovery, despite growing concerns over U.S.-China tensions and mass protests across America over the death of a black man in police custody.

The U.S. dollar index against a basket of six major currencies hovered near its weakest level since mid-March, standing at 97.885.

It has fallen about 5% from a peak hit in March when panic over the Covid-19 pandemic gripped the world’s financial markets, prompting investors to scramble for the safety of dollar cash.

“There are some potential flashpoints such as U.S. demonstrations and China-U.S. tensions,” said Kyosuke Suzuki, director of forex at Societe Generale. “But, on the whole, the market is still moderately risk-on.”

The euro fetched $1.1126, little changed so far on Tuesday but holding near a 2-1/2-month high of $1.1154 touched on Monday.

The common currency gained traction after the European Union’s executive last month unveiled a 750 billion euro plan to prop up economies hammered by the coronavirus pandemic.

Sterling hit a one-month high of $1.2525 before stepping back to trade flat $1.2479.

U.S. manufacturing activity inched up from an 11-year low in May, an index showed, and although the reading was weaker than forecast, it aligned with market expectations that the worst of the economic downturn has passed.

Against the safe-haven yen, the dollar was at 107.68 yen, stuck in a well-worn range between 106 and 108 over the last several weeks.

Market risk sentiment was hurt only slightly on Monday when Bloomberg reported China had told state-owned firms to halt purchases of soybeans and pork from the United States, raising concerns that the trade deal between the world’s two biggest economies could be in jeopardy.

Investors’ economic optimism has so far also survived the rising social unrest in the United States where President Donald Trump vowed to deploy thousands of heavily armed soldiers and law enforcement to halt violence in the

U.S. capital and other cities if mayors and governors failed to regain control of the streets.

The protests erupted over the death of George Floyd, a 46-year-old African-American who died in Minneapolis police custody after being pinned beneath a white officer’s knee for nearly nine minutes.

The Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, fetched $0.6789, having reached its highest levels since late January.

The currency hardly budged after the Reserve Bank of Australia kept its monetary policy on hold as expected.

The Chinese yuan gained slightly to 7.1200 per dollar, pulling further away from an eight-month low of 7.1765 touched last week.

“The Chinese authorities do not appear to intend to guide the yuan weaker now, certainly less so than they were when the yuan fell to 7.18 last September,” said Masashi Hashimoto, senior economist at the Institute for International Monetary Affairs in Tokyo.

The yuan hit an 11-year low of 7.1854 per dollar in September when diplomatic tensions intensified over Trump’s fourth round tariffs on Chinese products.

MSCI’s emerging market currency index also rose to its highest levels since mid-March with the Indonesian rupiah, Thai baht and Mexican peso all rising to more than two-month peaks.