FX Rate News

Sterling extended gains on Thursday amid expectations a long-elusive Brexit deal was imminent, raising hopes the UK can avoid a turbulent economic rupture on New Year’s Day.

The dollar was on the back foot in holiday-thinned trading as hopes for an agreement that would protect some $1 trillion in annual cross-channel trade from tariffs and quotas sapped demand for the safest assets.

The British pound strengthened 0.2% to $1.3525 early in the Asian day after surging 0.9% in the previous session to snap a three-day losing streak.

The dollar index was at 90.255 following Wednesday’s 0.3% slide. The euro strengthened 0.1% to $1.22025, adding to a 0.2% gain overnight.

The riskier Aussie dollar traded at 75.802 U.S. cents following the previous session’s 0.8% jump.

While there has been no official confirmation from either side that the months of negotiations had reached a conclusion, a senior British government source said Prime Minister Boris Johnson was poised to do a trade deal with the EU, after media reports said the agreement had already been done.

A source at the EU’s executive Commission said talks were still under way, and another British government source was also cautious, saying negotiations were ongoing.

“This time it really does appear that a deal will be struck just in time for Christmas,” Westpac macro strategist Tim Riddell wrote in a client note dated Dec. 24.

“If a deal does transpire on 24th December, GBP is likely to make further gains” toward $1.40, “but potential for a more substantial move towards 1.4500 now seems unlikely given how positions exhaustion is so prevalent.”

The Brexit headlines overshadowed U.S. President Donald Trump’s demand for changes to a coronavirus aid bill, effectively threatening a government shutdown next week.

The dollar index has lost more than 6% this year as investors bet the U.S. Federal Reserve will keep its monetary policy ultra-accommodative and fiscal stimulus will speed an economic recovery in 2021. Expectations for further declines by the dollar are helping buoy stock markets and emerging-market currencies.

“The fact that equity indices traded mostly in the green this morning reflects a consensus expectation that Trump will sign the budget into law – though he could wait until the eleventh hour,” Jane Foley, senior FX strategist at Rabobank in London, wrote Wednesday in a research note.

“If this doesn’t happen the USD could benefit from safe haven buying,” but longer term the U.S. currency will weaken to $1.23 per euro over the course of next year, she said.

The dollar took a breather on Friday after enduring a week-long beating that has pushed it below major support levels as its slide sucked in more short sellers keen to make an easy buck.

Traders in Asia skimmed some profits from the big moves, which had even sent the greenback to a nine-month low against the safe-haven yen while the Japanese currency was falling against the likes of the rallying euro, Aussie and kiwi.

The dollar was 0.3% stronger at 103.39 yen on Friday and rose by about the same margin against the Australian and New Zealand dollars. It gained about 0.2% against the euro.

Still, it is down 0.6% against the yen for the week and had fallen below September’s low of 103.18 yen on Thursday. It is also set for a seventh consecutive weekly drop against the Antipodeans and a 1.1% drop against the euro.

Sterling is on course for a 2.4% weekly gain on the dollar, its best weekly rise in six months, fueled by hopes of a Brexit trade deal breakthrough before the end of the year.

“The bigger picture here is that the market is getting hopeful for some resolution of Brexit and (U.S.) fiscal stimulus talks,” said Bank of Singapore currency analyst Moh Siong Sim.

Even soft U.S. economic data, rather than driving a safety bid for dollars, is increasing investors’ expectations for a government spending package, Sim said, which would lift consumption and risk appetite and weigh on the greenback.

Against a basket of currencies the dollar rose 0.15% to 89.986 – barely above the 2-1/2-year low of 89.723 it made on Thursday. The dollar index is down 1% for the week so far and has fallen 12.6% from a three-year peak in March.

Bitcoin was steady in Asia but has rocketed almost 20% this week to record levels above $23,000 as flows have poured in from mainstream investors who are beginning to view it as an inflation-protected wealth store.

Deal talk

Heading into the weekend traders are keenly focused on the progress of U.S. fiscal stimulus talks and Brexit trade negotiations to set the tone for the last weeks of the year.

A new potential roadblock to a $900 billion U.S. relief bill emerged in the Congress on Thursday as some Senate Republicans insisted on ensuring that expiring Federal Reserve lending programs cannot be revived.

Britain and the European Union also struck a downbeat tone about the likelihood of an agreement on Thursday, but traders are choosing to stick with bets on resolution in both cases.

“For now the narrative of global growth, and broadening of the recovery, favors risk-sensitive currencies like the Aussie and the kiwi,” said Rodrigo Catril, National Australia Bank’s senior currency strategist in Sydney.

“More of the same is to be expected in 2021.”

Elsewhere on Friday the Bank of Japan extended its aid scheme for corporate lending and kept other policy settings steady, as expected. It also pledged to begin an examination on more effective ways to achieve its 2% inflation target.

The Norwegian crown handed back some of yesterday’s sharp gains which followed hints at rate hikes by the central bank and the South Korean won was also weighed by a new wave of coronavirus cases which is straining hospitals.

The dollar was last up half a percent on the won and had punched through its 20-day moving average to hit 1,099 won.

The Thai baht rose to a seven-year high on hopes for inflows after Thailand eased travel restrictions on Thursday and as investors bet a warning from Washington may temper central bank efforts to restrain the baht’s recent rise.

A German sentiment survey and U.S. consumer sentiment data are also due later on Friday.

The dollar traded near 2 1/2-year lows against major peers on Tuesday as demand for the safest assets flagged amid progress toward agreeing U.S. fiscal stimulus and optimism for a Brexit deal.

The greenback was near its weakest since mid-2018 against the euro and UK pound with U.S. lawmakers scurrying to ready $1.4 trillion in spending.

A $908 billion bipartisan Covid-19 relief plan will be split into two packages, a person briefed on the matter said, raising hopes that at least a large part of the plan that already has bipartisan support will be approved.

“The big picture is that 2021 looks increasingly promising for global growth, and while the U.S. will certainly be a part of that, the global reflation trade is going to support the risk-sensitive currencies like the Australian dollar,” said Westpac currency analyst Sean Callow.

“The dollar is likely to be in the group of laggards, along with the likes of the yen.”

Across the Atlantic, European Union Brexit negotiator Michel Barnier said that sealing a trade pact with Britain was still possible, sowing hope that a deal can be reached with just days to avert a turbulent exit for the UK from the trade bloc at the end of the month.

The British pound rose 0.1% against the dollar to $1.3332, after jumping 0.8% on Monday. It reached a 2 1/2-year high of $1.3540 earlier this month.

The greenback slipped 0.1% to $1.2150 per euro, trading near a 2 1/2-year low of $1.2177 touched again on Monday.

Covid-19 vaccine roll-outs in the United States and Britain also buoyed risk sentiment, but optimism was tempered by spikes in infection and death rates. London will go into a tighter lockdown amid the discovery of a new variant of the virus.

The dollar index was little changed at 90.705 after Monday sinking as low as 90.419, a level unseen since April 2018.

The currency added 0.1% to 104.125 yen, another traditional safe-haven asset.

“With the roll-out of vaccines starting in the U.S. and the UK, we expect shutdowns to reduce in frequency and intensity, allowing the USD to resume its downtrend,” Commonwealth Bank of Australia currency analyst Joe Capurso wrote in a client note.

An agreement on fiscal stimulus would also “undermine” the U.S. dollar, he wrote.

The offshore Chinese yuan weakened 0.2% to 6.5444 per dollar. It reached 6.4975 earlier this month for the first time since June 2018.

The onshore yuan traded at 6.5549.

A Chinese official said Tuesday that the country could make targeted policy adjustments as the economy improves.

The Aussie slipped 0.2% to 75.130 U.S. cents after touching the highest since June 2018 at 75.780 on Monday.

The New Zealand dollar lost 0.1% to 70.72 U.S. cents after reaching 71.20 the previous session for the first time since April 2018.

The British pound rose against the dollar and euro on hopes that Britain and the European Union will secure a free trade agreement after their decision to extend negotiations beyond the Sunday deadline.

The dollar traded near a 2 1/2-year low against major peers ahead of a U.S. Federal Reserve meeting ending Wednesday where policymakers are expected to increase purchases of longer-dated Treasuries to contain a rise in yields.

The rally in sterling may not last, some analysts warn, because Britain and the EU have repeatedly struggled to narrow their differences and there is still a risk that trade and business will be thrown into chaos without an agreement.

“This is a temporary move higher in the pound, but it is still not clear that a no-deal scenario can be avoided,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“A partial deal with an agreement to negotiate further next year might save the pound, but anything less would lead to renewed selling. I would not buy sterling from here.”

The British pound jumped by 0.7% to $1.3317, its biggest one-day gain since Dec. 1.

Against the euro, sterling rose by 0.5% to 91.07 pence, the largest daily gain since Dec. 9.

The euro edged up 0.2% to $1.2129.

The dollar was little changed at 103.995 yen.

London and Brussels agreed on Sunday to “go the extra mile” in coming days to try to reach an elusive trade agreement despite missing their latest deadline to avert a turbulent exit for Britain from the European Union at the end of the month.

Britain formally left the EU in January, but has since been in a transition period during which it remains in the EU single market and customs union, meaning that rules on trade, travel and business have stayed the same.

That all ends on Dec. 31, and if by then there is no agreement to protect around $1 trillion in annual trade from tariffs and quotas, businesses on both sides would be hit hard, but the British pound is more vulnerable to selling than the euro, analysts warn.

The dollar, which has also been under selling pressure recently, faces a big week because of the Fed’s policy meeting.

U.S. dollar net short positioning in the latest week climbed to its highest since late September, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The dollar index against a basket of six major currencies stood at 90.793, close to a 2 1/2-year low.

Investors have sold the dollar on expectations of a global recovery, buoyed by positive coronavirus vaccine news and hopes for further U.S. stimulus that should lift the market’s risk appetite.

The dollar is also under pressure due to expectations that U.S. interest rates will remain low for an extended period.

“The secular trend remains overwhelmingly of U.S. dollar weakness,” Tapas Strickland, a director of economics at National Australia Bank in Sydney, wrote in a research note.

Elsewhere, the Chinese yuan traded at 6.5370 in the onshore market, little changed on the day. In the offshore market, the dollar slipped 0.2% to 6.5237 yuan.

The Aussie dollar was little changed at 75.342 U.S. cents. Australian central bank minutes on Tuesday could prompt investors to scale back bets for additional monetary easing.

Across the Tasman Sea, the New Zealand dollar edged higher ahead of data later in the week forecast to show a sharp rebound in the country’s gross domestic product.

Sterling was set to snap five weeks of gains with a slump on Friday, as leaders on both sides of Brexit trade talks sounded doubtful about finding a resolution, while the Australian dollar soared along with iron ore prices to hit a 2.5-year high.

The greenback was pinned near a two-and-a-half year low, with markets heavily short dollars as investors bet on better returns in other currencies as the pandemic recovery takes hold.

The euro rose to $1.2158 even after the European Central Bank expanded its bond buying scheme, given the move was widely expected. The central bank also lifted growth forecasts but lowered inflation projections for 2022.

Against a basket of currencies the dollar drifted lower to 90.662, which is barely a third of one percent above last week’s 31-month trough.

Moves in morning trade were modest, but enough to push the Australian and New Zealand dollars to new multi-year highs and keep the euro within range of last week’s two-and-a-half year high of $1.2177.

The yen rose 0.3% to 103.04 per dollar and the New Zealand dollar rose 0.1% to $0.7104.

The Australian dollar has broken past 75 U.S. cents for the first time since mid-2018 overnight as prices surged for Australia’s biggest export commodity, iron ore.

It last traded at $0.7547 and is set for a sixth consecutive weekly rise. Over that time, it has gained five cents, or 7% against the dollar.

The Australian dollar also hit a one-and-a-half year high of 78.58 yen and a six-month peak of A$1.6083 per euro overnight and even leapt against the yuan despite worsening trade tensions between China and Australia.

“With the iron ore price on a bull run, the Aussie is largely ignoring ‘bad’ news,” said Commonwealth Bank of Australia currency analyst Joe Capurso.
Final Countdown

Investors have until the weekend to make last-minute adjustments to their sterling positions as Brexit trade talks enter their final lap.

The pound slipped 0.8% overnight after British Prime Minister Boris Johnson said on Thursday there was “a strong possibility” Britain and the European Union would fail to strike a deal and it changed hands at $1.3306 in Asian morning trade.

The British pound has shed 1% so far this week as efforts to seal a trade deal with the EU before protections on some $1 trillion in annual trade expire at the end of the month have yielded little thus far.

Johnson and European Commission President Ursula von der Leyen, who has said talks are “difficult,” have set Sunday as the deadline for finding a way forward.

Sterling volatility gauges are soaring as markets expect a wild ride to the finish line.

One-week volatility is at a new eight-month high and the premium of puts to calls is near its highest since April as investors pay up for downside protection.

“There has been a greater tendency for more jittery sterling longs to hit the sell button, although (the) market view remains that a deal is slightly more likely than not,” said Stephen Innes, the Bangkok-based chief strategist at Axi

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