Sterling’s Rebound Weighs on Dollar


On Wednesday, the current floating dollar came under pressure in Asian trading, as sterling to some extent recovered from its dramatic losses in the prior session.

On Tuesday, the pound surged 1.5% at $1.2301, after dropping as low as $1.2086, heading towards a 31-year low of $1.1450 hit on Friday as investors dreaded the influence on Britain from leaving the European Union.

Sterling benefited from a report that British Prime Minister Theresa May has accepted that Parliament should be permitted to vote on her Brexit plan.

“May will accept voting at the Parliament, which is giving the pound a short-term boost, but I’m not sure it’s long-lasting,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“Its latest fall was too much and too rapid, so it’s natural to see some rebound,” he said. “It seems the dollar’s weakness against sterling today is affecting the other dollar currency pairs as well, which is also natural.”

The dollar index, which tracks the greenback compared to a basket of six major competitors, fell 0.2% to 97.504 after increasing as high as 97.758 on Tuesday, its proudest peak since March.

The greenback decline 0.1% to 103.45 yen, while the euro was steady at $1.1052 , improving from a dip as low as $1.1049, its lowest point since early August.

The greenback had been on an improvement because of the increasing expectations that the U.S. Federal Reserve would increase interest rates as early as this year, with the markets pricing in approximately a 70% probability of a hike in December.

As Democratic presidential nominee Hillary Clinton widened her lead in opinion polls over Republican rival Donald Trump, the greenback has also benefited.

Investors expected the minutes of the Federal Reserve Open Market Committee’s September meeting, set to be posted later on Wednesday, as well as U.S. retail sales data on Friday, for indications as to how close the U.S. central bank is coming to hiking interest rates.

“There is an increased probability of bigger interest rate differentials between Japan and the U.S., so that is a factor for yen softening, although this is not as big a factor as it used to be,” said Harumi Taguchi, principal economist at IHS Markit in Tokyo.

BoJ policymakers have indicated they have a higher edge for further easing, sticking to their pledge to increase stimulus, but only to protect the economy from external shocks.

BOJ Governor Haruhiko Kuroda made no direct reference of the need to attain his inflation goal quickly when he restated to Japan’s parliament on Wednesday that he remains ready to reduce interest rates or expand asset buying if needed.

On Additional News

On Tuesday, the U.S. dollar cuts increase against its Canadian counterpart, as oil prices bounced back, however,  the greenback still stayed supported by ongoing expectations for a 2016 U.S. rate hike.

USD/CAD pulled away from 1.3239, the session peak, to touch 1.3214 during early U.S. trade, still up 0.30 percent.

The pair was expected to find support at 1.3106, the low of October 4 and resistance at 1.3279, Monday’s peak.

Demand for the U.S. dollar stayed supported as Friday’s disappointing U.S. job data was not expected to stop the Federal Reserve from increasing  interest rates later this year.

In the meantime, the commodity related Canadian dollar recovered some ground as oil prices recovered higher on Tuesday, during  increasing expectations for an Organization Of Petroleum Exporting Countries  led output reduction.

U.S. crude prices increase to four month peaks on Monday after Russian President Vladimir Putin stated his country is ready to join an oil production deal which may include an output freeze or cut.

The loonie was higher compared to the euro, with EUR/CAD slipping 0.30% to 1.4629.

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