Imre Speizer, FX Strategist at Westpac, summarizes Monday's action, noting that markets remained in the grip of Brexit-inspired risk aversion.
Global market sentiment: Markets remained in the grip of Brexit-inspired risk aversion. Standard & Poor’s downgraded the UK from AAA to AA (with a negative outlook), citing political and economic instability risks. The S&P500 is down 2.0%, Brent crude down 2.3%, US dollar stronger and core interest rates lower.
Interest rates: The US 10yr treasury yield fell from 1.52% to 1.45%, while the 2yr ranged sideways between 0.55% and 0.60% (a 14mth low), flattening the curve to a nine-year low. Market pricing for Fed rate hikes fell further, the July and September meetings still given a 5%-10% chance of a cut, but hikes not fully expected until early 2019. Fed Chair Yellen cancelled her speech in Europe and cut her trip short to return to the US.
Currencies: The US dollar outperformed all apart from the yen, the index (DXY) around 1% higher. EUR fell from 1.1074 to 1.0971. Underperformer GBP fell further from 1.3470 to 1.3121 – a fresh 31-year low. USD/JPY was relatively stable in a sideways 101.41-102.19 range. AUD fell from 0.7450 to 0.7325. NZD fell from 0.7100 to 0.6981. AUD/NZD remained rangebound, between 1.0450 and 1.0510.
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