Dollar ends lower on falling U.S. yields, sterling briefly jumps on Merkel's Brexit comments

Market Review - 20/08/2019  23:56GMT  

Dollar ends lower on falling U.S. yields, sterling briefly jumps on Merkel's Brexit comments

The greenback pared initial gains made in Asia and European session and ended the day broadly lower as investors remained cautious ahead of the annual Federal Reserve Jackson Hole symposium in Wyoming later this week where a dovish tone would potentially be seen from the Fed together with falling U.S. yields. Sterling rallied across the board in New York after Germany's Merkel said Irish border solution possible.  
  
Versus the Japanese yen, the greenback met renewed selling at 106.68 at Asian open and dropped to 106.40 in early European morning. Price continued to ratchet lower on falling U.S. Treasury yields and hit an intra-day low at 106.17 in New York morning. However, the pair then pared its losses and staged a short-covering rebound to 106.46 before retreating to 106.20 near the close due to weakness in the Dow.  
  
The single currency went through a hectic session. Euro gained to 1.1088 in Asian morning before retreating to 1.1072 in European morning. Despite a brief spiked down to an 18-day low at 1.1066 in New York morning on cross-selling of euro especially vs sterling, the pair erased its losses and later rallied to an intra-day high at 1.1106 after Italy's Prime Minister Giuseppe Conte announced his resignation before easing.  
  
Reuters reported Italian Prime Minister Giuseppe Conte said he would resign later on Tuesday following a decision by the ruling League party to present a no-confidence motion in the coalition government.  Addressing parliament over the political turmoil unleashed by the League, Conte said he would hand in his resignation to President Sergio Mattarella, who will have to decide if he wants to call early elections or try to put together a new coalition.  
  
The British pound also went through a volatile session as despite initial selloff from Asian high at 1.2137 to 1.2084 in early European morning, then lower to an intra-day low at 1.2065 ahead of New York open. Cable then erased its losses and rallied to an 11-day high at 1.2180 after Germany Chancellor Angela Merkel said the EU would think of practical solutions to the Irish backstop issue. However, lack of follow-through buying triggered profit-taking and price retreated sharply to 1.2114 in New York but then quickly rebounded to 1.2178 before stabilising.  
  
German Chancellor Angela Merkel said on Tuesday the EU would think about practical solutions regarding the post-Brexit border between Northern Ireland and the Republic of Ireland, but not by revisiting the Withdrawal Agreement.  "(At) the moment we have a practical arrangement on how to preserve the Good Friday agreement and at the same time define the borders of the (European Union's) internal market, we would not need the backstop anymore," Merkel told a news conference during a visit to Iceland.    
"This means we would naturally think about practical solutions. And I've always said that when one has the will to find these solutions, one can do so in a short period of time. The EU is ready to find a solution."  She said this would not require the Withdrawal Agreement to be re-opened and was instead a question of the so-called political declaration on future ties.  
  
  
Data to be released on Wednesday :  
  
Australia Westpac leading index, UK PSNB GBP, MBA mortgage applications, Canada CPI, CPI BOC core, CPI sa, core CPI sa and U.S. existing house sales.