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Yellen Testimony to Test the Dollar, While N. Korea Tests Trump

Bob Mason
Yellen Testimony to Test the Dollar, While N. Korea Tests Trump

Earlier in the Day:

North Korea tested another intercontinental ballistic missile in the early hours of the day that tested risk appetite through the Asian session this morning. Rallies in the U.S markets largely offset demand for the safe havens, as the Dollar managed to stand its ground relatively well considering the usual declines over North Korean actions.

In spite of the latest attempts by the North Koreans to ruffle Trump’s feathers, the Asian markets were mixed at the time of writing. The Nikkei was up 0.41%, with the ASX200 up 0.45%, whilst Chinese equities continued to slide, the CSI300 down 1.11%, taking the Hang Seng with it.

The Aussie Dollar was on the back foot, down 0.09% to $0.7588 at the time of writing, with falling oil and commodity prices weighing on commodity currencies through the session, while the Yen eased back from an intraday high ¥111.38 to ¥111.51 against the Dollar at the time of writing, down 0.03 on the day.

Progress on tax reforms did the trick, with the markets having something other than North Korea to consider through the session. The timing couldn’t have been better, though the continued slide in China’s equity markets will become a worry before long.

The Day Ahead:

Following a relatively quiet start to the week, things get a little more interesting this morning. Key stats out of the Eurozone include French consumer spending and 2nd estimate GDP numbers for the 3rd quarter, together with Germany and Spanish prelim November inflation numbers. Whilst data out of France will influence, inflation numbers will likely take centre state. November’s prelim private sector PMI figures had indicated a marked increase in both input and output prices. Should we see prices passed on to the consumer, Draghi’s outlook on inflation may prove to be correct and the EUR will likely see a strong move back towards $1.19 levels.

On the political front, the markets will be looking ahead to Thursday’s meeting between Chancellor Merkel and Martin Schulz, the leader of the SDPs and there will be plenty of interest following CSU Agriculture Minister Schmidt’s EU weed killer vote on Monday.

The EUR was up 0.08% at $1.185 at the time of writing, with direction through the day likely to be hinged on today’s inflation figures.

For the Pound, it’s been a good start to the day, with Cable up 0.16% to $1.3360 ahead of BoE Governor Carney’s speech this afternoon.

With no material stats out of the UK through the day, any clarifications on the Brexit divorce bill will influence, the Pound having found support through Tuesday following news of the Tory Party having offered an amount of between €40bn and €55bn. The key to finalizing the divorce bill is not the amount, but the fact that trade talks can begin once the EU has accepted the size of the offering. Theresa May could face altogether different issues at home, once the final bill has been agreed, which is the ever present double edged sword in politics.

Across the Pond, key stats this afternoon include 3rd estimate GDP numbers for the 3rd quarter, which are expected to be U.S Dollar positive. The markets will also be looking ahead to FED Chair Yellen’s final testimony to Congress. In recent testimonies, the FED Chair has been dragged across the coals. Following Powell’s heat introduction on Tuesday, Yellen may be less receptive to a grilling and more candid on her views on inflation and policy.

With Yellen in the spotlight, progress on tax reforms and whether Trump can avert a government shut down before Christmas will also be there for the markets to consider. Looking at North Korea, there’s been little backlash in the markets following the latest missile test. The North Koreans have now claimed that the U.S is within range, which could provoke a chilly response from Trump that would likely cool the Dollar.

At the time of writing, the Dollar Spot Index was down 0.03% at 93.241 with plenty for the markets to consider through the day.

This article was originally posted on FX Empire