The Euro and Sterling both jumped by over half a percent against the US Dollar on Tuesday after news of talks between North and South Korea led to an improvement in sentiment towards riskier currencies.
According to a report out of Seoul yesterday morning, the North and South are set to hold their first summit in more than a decade at the end of next month, with the North reportedly expressing a willingness to talk to the US regarding denuclearisation. A tweet from Donald Trump saying that he saw ‘possible progress’ regarding North Korea further improved sentiment towards those currencies deemed riskier.
The greenback itself ended London trading lower against every other G10 currency, including the typically ‘safe’ Japanese Yen and Swiss Franc, as US trade concerns outweighed the unwinding of safe-haven bets there. President Trump’s announcement of tariff impositions on steel and aluminium imports last week has sparked concerns that authorities in the EU and China could retaliate with sanctions of their own.
We now look ahead to a potentially busy few days in the currency markets, with a number of major central banks set to announce their latest monetary policy decisions. Policymakers in Canada are first up this afternoon, although they are broadly expected to keep rates unchanged amid NAFTA concerns are relatively soft domestic economic data. Then on Thursday, the European Central Bank will be convening. We will be looking closely to see whether recent disappointing inflation data is reflected in a downward revision to staff economic forecasts.
Fed member Kaplan talks up US interest rate hikes
Federal Reserve member Robert Kaplan, seen as one of the more dovish members of the bank’s FOMC during his time as a voting member last year, struck an optimistic tone during communication yesterday. Kaplan said that unemployment would go below 4% this year and that the US is either ‘at or below full employment’. He said that he supported the case for three interest rate hikes in the US this year, a slightly faster pace than the market is currently pricing in. However, his comments were mostly overlooked, with traders selling the Dollar on trade concerns and an improvement in risk sentiment.
This morning’s ADP employment change numbers out of the US will be the main economic data release today. The number could give us a decent idea as to the strength of this Friday’s nonfarm payrolls report.