The risk-off sentiment reemerged on Friday in Asia, as the North Korean leader Kim Jong Un delivered another threatening message to the US following Trump’s warning at his debut speech at the UN General Assembly on Monday. The dollar lost ground against a basket of major currencies, paring gains made after the Fed’s decision to start unwinding its balance sheet on Wednesday. Meanwhile, the pound remained steady ahead of the widely expected speech by the British Prime Minister on Brexit later today.
Investors were in a risk-averse mode during the Asian session after the North Korean leader Kim Jong Un stated on Friday that he was considering “the highest level of hard-line countermeasure in history” against the US. A few hours later, the North Korean Foreign Minister, Ri Yong Ho, said that the regime is preparing to launch a hydrogen bomb test on an “unprecedented scale”. The North Korea’s threatening message arose in response to the recent war of words by Trump who said the US would “totally destroy” the regime if it continued challenging the US or its allies.
The dollar index dropped by 0.33% on the day to 91.33, reversing more than half of gains made on Wednesday after the Fed decided to start reducing its balance sheet in October.
The safe-haven assets moved higher due to rising geopolitical tensions. Dollar/yen tumbled by 0.45% to 111.95 while dollar/swissie declined by 0.24% to 0.9684. Gold jumped by 0.45% to $1,296.61
The euro gained 0.23% against the dollar on Friday, reversing more than half of yesterday’s losses. During the weekend, attention will turn on the German federal elections on Sunday, with markets eager to see if chancellor Angela Merkel will stay another four years in power. Based on voter opinion polls, Merkel’s center-right Christian Democratic Union is said to lead the elections by attracting 36% of the votes. Although the first election results will be announced on Sunday, the final outcome will not come out until Tuesday. However, Reuters opinion surveys show that even if the election outcome upsets, the impact on the EU markets would be minimal as the majority of the parties are in favor of the euro project.
Today, markets will keep a close eye on speeches by ECB officials. The ECB executive member Benoit Coeure will deliver his speech first ahead of ECB President Mario Draghi, while the ECB Vice President Vitor Constancio will follow later on.
New Zealand will also go to the polls Saturday, a day before the German elections. Despite the National Party of Prime Minister Bill English leading the latest polls, its lead is close to 10 points making the race tight and volatile. The kiwi was trading 0.10% down at $0.7297.
The pound was in a range versus the greenback around $1.3580 and was up by 0.16% against the euro at €0.8805 ahead of the British prime minister’s key speech on Brexit later today in the city of Florence in Italy. Theresa May is expected to give an overview of Brexit negotiations according to her deputy spokesperson, with markets anticipating that May will support a softer exit from the EU. This came after BBC sources said on Thursday that May will likely express her willingness to pay €20bn to the EU during the transition period under the agreement to have access to the bloc’s single market. Note that Brexit talks are scheduled to begin their fourth round on Monday.
The loonie recovered smoothly in Asia, rising by 0.15% and driving dollar/loonie down to 1.2306. In terms of data, Statistics Canada will release inflation figures for the month of August with forecasts suggesting inflation to increase from 1.2% in July to 1.5%. Another report on monthly retail sales is projected to show no change in July’s household spending.
Looking at energy prices, those were in an uptrend before the OPEC meeting kicks off in Vienna later today. Oil traders are waiting for the OPEC oil producers as well as some other producers outside the organization to discuss a potential extension of the supply cuts beyond March. WTI crude jumped by 0.28% to $50.68 per barrel and Brent increased by 0.14% to $56.51.