Forex today was dominated by a risk-on-theme and a u-turn around in the pound on a 'change of tone' from BoE Governor Mark Carney speaking on a Panel today saying:
“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional." This is a significant shift in policy bias from Carney and as such, the pound rallied almost two cents to a high of 1.2971. This is the level where the last Tory party conference took place and talk of hard Brexit for the first time before the pound tanked through key support and to post EU referendum result lows below 1.2800 - it is indeed a key area. However, as you can read in ING's report below, the pound may not be able to recover much further beyond this milestone.
Elsewhere, U.S. equities advanced as did US Treasury yields. They climbed further after their biggest advance since January following Fed Chair Janet Yellen’s indication that the U.S. economy can withstand higher interest rates. The ten years ranged between 2.1928% - 2.2560% and finished +0.63% on the day at 2.2191% at the time of writing. The DXY, however, was down - 0. 39% and closed at 96.021. The dollar is pressured with advancements on positive fundamentals across the spectrum of global economic sentiment and shifts in rhetoric from ECB and BoE. EUR/USD at highest levels since this time last year at 1.1390, USD/CAD lowest level since Feb this year, at 1.3013. AUD highest level since April at 0.7645 high and Kiwi highest since at 0.7314 the high. Gold was soft in risk-on markets but stable at $1,245 the low on dollar weakness.
Market snapshot at the time of writing, courtesy of Oliver Renick at Bloomberg:
- S&P 500 up 0.8% to 2,439
- Dow Industrials up 161 to 21,471
- Financials up 1.6% for third straight advance
- Industrial and material shares gain 1%
- Energy stocks up 0.8% with oil up 0.9%
- Utility, real-estate shares little changed
- Treasury yields, 10-year up 1bp
- VIX down to 10.1
The Asian day ahead:
06:30 GMT Bank of Japan Board Member Yutaka Harada speaks at capital markets seminar in Tokyo
Keynotes from US session:
- Further GBP/USD upside unlikely - ING
- BoE’s Carney: MPC has been clear that its tolerance for above-target inflation is limited
- Draghi speech: 'Relatively confident' we will see improvement in productivity
- Kuroda Speech: Investment in wage growth has been slow
- Poloz Speech: No comment on economy nor monetary policy
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