FX Morning Colour: Dollar derives more momentum from Fed, but Pound flounders


The buck appears to have stopped for the Greenback on Wednesday, and its resurgence from mid-term election lows has been fuelled to a degree by the latest FOMC policy statement that effectively underpins market expectations for a December hike. Amidst almost universal gains vs currency counterparts, the index is now nudging 97.000 from just shy of 95.700 at one stage and the 2018 peak of 97.201 is back within striking distance.


Brexit impulses continue to ebb and flow between positive vibes on deal prospects and the proverbial cliff edge withdrawal, but the bottom line is that Irish border and back-stop differences remain unresolved to leave the UK at risk of failing to agree terms at home and/or with the EU. Hence, Sterling has lost momentum and is underperforming alongside the NOK (undermined by much softer than expected Norwegian inflation data to trade down around 9.5700 vs the Eur) within the G10 ranks, as Cable teeters above 1.3000, and largely shrugged off a barrage of UK data (GDP firm and trade above consensus, but other elements less encouraging).


The next worst majors, with Loonie hit by collapsing oil prices and sliding towards 1.3200 vs its US peer, while the single currency continues its relatively sharp and abrupt pull-back from 1.1500 to retest support ahead of the 1.1300 ytd low. Ongoing Italian-EU budget differences are weighing along with more signs of a slowdown, or even weakness in the Eurozone economy, while hefty option expiries are also eyed (1.1300 in 1.1 bn, 1.1340-50 in 2.0 bn and 1.1375 in 1.3 bn for example).


Also falling prey to their US rival’s revival and hardly helped by neutral or wait-and-see policy guidance from the RBA or RBNZ, as Aud/Usd recoils to sub-0.7250 and Nzd/Usd backs off further from almost 0.6800 to under 0.6750.


More divergence between the ‘safe-havens’ as the Jpy bucks the overall trend and holds its own vs the Usd, albeit weakening to 114.00+ at one stage overnight, while the Franc is depreciating and not far from 1.1000.