Yen Climbing, British Pound in Spotlight, US Dollar Index in Play Today

03/02/2018 11:10 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

Overnight, the Japanese yen remains a key focus at 15-month highs. The British pound is in the spotlight. Geopolitics puts the U.S. Dollar Index into play again with 89.44 looking very important again, writes Bob Savage, CEO of Track Research Thursday.

It’s not where you are going but how you get there. The markets overnight limp into the weekend with risk lower, USD lower, uncertainty higher with the Italian elections and the aftermath of U.S. intent on steel and aluminum tariffs blamed.

A less hawkish sounding FOMC Powell also plays a role – as he sticks to gradualism and doesn’t think the U.S. economy is overheating.

The rally in Italian BTPs, -15bps so far this week, makes clear that traders have already positioned for a hung parliament, so if Italian voters deliver anything different, watch out 5* trouble. Destinations matter.

Overnight, the Japanese yen (JPY/USD) remains a key focus at 15-month highs – first on risk aversion correlations, second on policy fears, third on CPI/Jobs data - as BOJ Kuroda talks about the exit before he gets to his destination. "Right now, the members of the policy board and I think that prices will move to reach 2 percent in around fiscal 2019. So, it’s logical that we would be thinking about and debating exit at that time too," BOJ Governor Kuroda said Friday. "I’m not saying that the negative rate of 0.1 percent and the around 0 percent aim for 10-year bond yields will never change, but it is possible. We will be discussing that at each policy meeting."

Let’s be clear JPY is more than a rate or risk barometer.

The British pound (GBP/EUR) is also in the spotlight as UK PM May tries to push frictionless trade to the EU. Newswires report that May puts out five "tests" for a future UK-EU deal and pledge to "bring our countries together," that a "deepest possible" free trade deal is "achievable" because it is in both EU and UK interest.

GBP playing around its 55-day average 1.3790 and technically looks set for much lower like the winter temperatures. Geopolitics also have a part in the overnight post the Putin "invincible" missile release yesterday – adding a new arms race to the mix driving U.S. deficits and USD doubts. All of this puts the US Dollar Index (DXY) into play again with 89.44 looking very important again.

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