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By xemarketanalysis August 29, 2017 1:48 pm
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    XE Market Analysis: North Korea Missile Launch Rocks Markets, Euro Soars

    OVERVIEW

    • North Korea’s missile launch overnight reignites fears that it has no intention of easing tensions with the US, and that military conflict remains a serious risk. 
    • Swiss Franc and Japanese Yen are in demand due to risk aversion global stocks being down sharply.
    • Euro surges through 1.20 with the US Dollar under broad pressure.
    • US consumer confidence rose more than expected in August.
    • German consumer confidence improved further in August, supporting expectations for strong growth.
    • UK house price growth slowed to a 3-month low in August as Brexit uncertainty weighs.

    HIGHLIGHT

    The Euro surged to the psychological 1.20 level early in the European session, adding to its impressive rally from last week and hitting its highest level since January 2015. Political tensions in the US and a steep drop in market expectations for another Fed hike this year are supporting the single currency, along with expectations for the ECB to reduce its stimulus. 

    US DOLLAR

    The Dollar is under broad based pressure as market expectations for a third rate hike this year slip back towards a 25% probability. Consumer confidence rose more than expected to its highest since March as the strong labor market continues to keep sentiment buoyant. This week’s key highlight will be the August employment report on Friday. A solid jobs number in the order of 180,000 may reignite expectations that the Fed will follow through with a further hike and provide some support to the Dollar.

    BRITISH POUND

    Sterling has remained under pressure as London traders returned from a bank holiday. The third round of Brexit negotiations didn’t get off to the greatest start yesterday as Michel Barnier repeated previous comments that Britain isn’t taking the negotiations seriously. The UK insisted that talks are going well, and should move on to the future UK-EU relationship, something the EU says cannot happen until the divorce issues are settled.

    EURO

    The Euro rose over 0.5% versus the US Dollar after breaking through the key 1.20 level, amid strong economic data and expectations for the ECB to scale back its stimulus in the coming months (see highlight). The 14% rise in the Euro this year may complicate the ECB’s decisions due to the impact of a stronger currency on inflation. 

    CANADIAN DOLLAR

    The Loonie pulled back from a four-week high against its US counterpart as oil prices dipped with the Dollar under pressure broadly. Markets are almost fully pricing in a 0.25% hike at the BoC’s October meeting, providing the Canadian Dollar with support. The key data point this week is second quarter GDP growth that is forecast to show the economy maintained its impressive 3.7% pace. 

    AUSTRALIAN DOLLAR

    The Australian Dollar is generally lower amid broadly based risk aversion due to North Korea’s missile launch. It’s a quiet week on the data front, however, supportive of the Aussie is the rebound in iron ore prices and positive Chinese economic data.

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