Russian and German attacks spook markets
A slight upgrade to growth and inflation expectations at the Bank of Japan overnight has allowed for a little hint of yen weakness to continue through the Asian session but as European traders walk on to the dealing floor there are geopolitical tensions that will take precedence.
An attack on the Russian envoy to Turkey and a truck ramming into crowds at a Berlin Christmas market have heightened fears that the uneasy political scenes in Turkey, Russia and Germany will continue to roil markets. While the Turkish attack is almost certainly an act of Syrian retribution, authorities are unwilling or unable to speculate on the motivations in Berlin. We would be on the lookout for comments from members of the anti-EU AfD party in response.
EUR/USD has dipped below 1.04 overnight as it continues its slow, and at least to some, a certain decline towards parity. Weakness in the single currency could also be felt after news that a fresh EUR20bn bailout for the Italian banks from the country’s government could be put to parliament soon.
Dollar helped higher by Trump and Yellen
We also saw that the election of Donald Trump was confirmed by the Electoral College. This could have allowed for a slight impulse of USD buying but the chances of the election in any way being overturned was a very slim one.
A speech from Janet Yellen that rather left the economy alone and did not see her walk back any of the Fed’s hawkish rhetoric last week may have also provided the dollar with additional support.
As we have said before, there is a very good chance this strength continues at least until the inauguration of the new President and we find out whether he is going to follow through on his promises of boots on the ground in American factories, higher infrastructure spending and an aggressive trade and diplomatic stance against China and Mexico.
Theresa May unlikely to rock the boat in front of Committee
News on Brexit has been wearily slow of late but sterling strength, most notably against the USD, has been fading in the past few sessions. This is not entirely the pound’s fault; the greenback has been a rocket ship since the Federal Reserve meeting last week but we do not see any support coming from PM May’s appearance in front of a House of Commons Liaison Committee on her plans for leaving the EU this afternoon. She will appear at 2pm in front of lawmakers.
Elsewhere, the data calendar is very quiet and while these markets may have the feeling of limping towards the finish line and a glass of sherry, the geopolitical risk could easily give currencies a bout of festive heartburn.