Dollar ends mixed after initial N. Korea tension, sterling falls after May's Brexit speech and Moddy's downgrade: Sept 25, 2017

Market Review - 23/09/2017   05:20GMT

Dollar ends mixed after initial N. Korea tension, sterling falls after May's Brexit speech and Moddy's downgrade

The greenback ended the day mixed on Friday after falling initially in Asia against majority of its peers on risk-aversion as geopolitical tensions between U.S. and North Korea increased after N.Korea said it might test a hydrogen bomb over the Pacific Ocean.

North Korea's Ri Yong Ho (Minister of Foreign Affairs) believes North Korea may consider nuclear test on the Pacific Ocean of an unprecedented scale.

Versus the Japanese yen, dollar tumbled in Asian morning from 112.55 to as low as 111.66 on active safe-haven buying of yen on news N. Korea will conduct more powerful nuclear test. However, greenback pared intra-day losses and ratcheted higher to 112.16 at New York morning on rebound in U.S. yields and moved narrowly in subdued New York afternoon, price traded around 111.99 near Friday's close.

The single currency traded with a firm bias in Asia as intra-day decline in usd/yen and usd/chf led to broad-based usd weakness. Price ratcheted higher in Europe to intra-day high of 1.2005 in European morning on renewed broad-based euro buying. Later, euro erased intra-day gain in New York trading and fell to session lows of 1.1938 as the greenback regained traction in New York afternoon, euro last traded around 1.1951 near the close.

Cable swung widely in hectic trading on Friday. The pound traded sideways in Asia before edging up to session high at 1.3596 at European open. Cable then pared its gains and retreated to 1.3537 in European morning before recovering. Price then met renewed selling at 1.3587 at New York open and tumbled to 1.3488 in New York morning after UK PM May's failed to deliver specific details on for how the U.K. might retain preferential access to EU's single market. Although price briefly bounced back to 1.3567 on short covering, price quickly retreated and traded just above New York morning low before spiking to session low of 1.3450 near the close after ratings agency downgraded U.K. debt rating to Aa2 from Aa1, price last traded around 1.3503 at the close.

Reuters reported U.K.'s May said 'speech comes at a critical time in evolution of UK-EU relationship; we are moving through a new and critical period in UK-EU relationship; looks ahead to Brexit with optimism; British decision to leave EU was statement about how Britons want democracy to work; pooling of sovereignty by EU bring benefits but also means minority countries have to accept decisions they don't like; leaving EU does not mean we are no longer a proud member of family of European nations; if we fail in Brexit talks, only beneficiaries would be those who oppose our values; UK realises cant expect everything to remain the same after Brexit; wants to work hand in hand with the EU rather than part of the EU.'

Reuters reported at Friday's close ratings agency Moody's downgraded the UK's long-term issuer rating to Aa2 from Aa1, citing weakened outlook for its public finances.

Moody's revised up its outlook on the country to stable from negative.

Fiscal pressures will be exacerbated by the erosion of the UK's medium-term economic strength, likely resulting from the manner of its departure from the European Union, Moody's said

In other news, Kansas City Fed President Esther George said 'most recent Fed projections make it appear full employment has been met; weak inflation reading does not appear related to weak economy, with general confidence it will increase; expects job growth to weaken but remain at levels needed to absorb new workers and keep unemployment low; loose financial conditions make here concerned about financial stability conditions that cannot be perceived until they become a problem; looks like consumers in a good position to continue spending; hopes quantitative easing kept 'in a box' from now on for emergencies only; gradual interest rate moves appropriate, but Fed needs to keep rate rises underway.'

On the data front, market research group IHS Markit said that its flash services purchasing managers’ index (PMI) fell to 55.1 in September, from the prior month's reading of 56.0. That was a two-month low. Analysts had expected the reading to slip only to 55.9.

Data to be released this week:

Japan Nikkei manufacturing PMI, leading indicator, coincident indicator, Germany IFO business climate, IFO current conditions, IFO expectations, and U.S. national activity index, Dallas Fed manufacturing business index on Monday.

New Zealand imports, exports, trade balance, ANZ business confidence, ANZ activity outlook, Germany import prices, Frank business climate, Italy trade balance, U.K. BBA mortgage approvals, and U.S. redbook, CS home price, consumer confidence, new home sales, Richmond Fed manufacturing on Tuesday.

Swiss UBS consumption indicator, France consumer confidence, Italy business confidence, consumer confidence, Swiss ZEW investor sentiment, U.K. GDP, current account, Italy industrial orders, industrial sales, U.K. CBI distributive trades, and U.S. building permits, durable goods, pending home sales on Wednesday.

New Zealand RBNZ interest rate decision, Germany GFK consumer confidence, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence, Germany CPI, HICP, and U.S. GDP, PCE, wholesales inventories, initial jobless claims, KC Fed manufacturing on Thursday.

New Zealand building permits, U.K. GFK consumer confidence, nationwide house price, mortgage approvals, Japan household spending, national CPI, Tokyo CPI, unemployment rate, industrial production, retail trade, construction orders, housing starts, Germany retail sales, unemployment change, unemployment rate, France consumer spending, CPI, producer prices, Swiss KOF leading indicator, Italy CPI, producer prices, EU CPI, Canada GDP, producer prices, and U.S. personal spending, PCE, core PCE, University of Michigan sentiment on Friday.