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What’s in Store for the Dollar and the Pound Today?

Bob Mason
The Dollar continues to struggle through the holiday season, with volumes on the lighter side and sentiment still relatively subdued towards a possible Dollar rebound in the New Year.

Earlier in the Day:

There were no material stats released through the Asian session this morning, leaving the markets to ponder on what lies ahead for the majors as the New Year rapidly approaches.

Things were a little different for the Aussie Dollar however, with a bounce in commodity prices driven by rising oil and gold prices, providing strong support. At the time of writing, the Aussie Dollar was up 0.22% to $0.7745, with only the Kiwi Dollar anywhere near, up 0.13% to $0.7049.

Adding to the moves on the Aussie Dollar was falling yields on U.S Treasuries, with the U.S Dollar continuing to struggle against the commodity currencies. The tax reform bill and the extension to 19th January for funding the government have certainly provided little in terms of narrowing yield differentials for now.

Both the RBA and the RBNZ will have been looking for softer currencies going into the New Year and, while it was looking precarious for both in the run up to the holidays, both have managed to rebound from lows at the start of the month.

Lighter volumes will have certainly contributed to the moves in the early part of the day, with little to influence the markets this week.

The Yen slipped from an intraday high ¥113.17 to ¥113.2 against the Dollar, up just 0.03% for the day, with the mixed bag in the equity markets doing little to drive demand for the safe haven.

In the equity markets, the CSI300 struggled through the day, down 1.54% to reverse Tuesday’s declines, while the Nikkei gained 0.08% by the close, with the ASX200 closing the day flat. For the Hang Seng, it’s been a choppy return, down 1.32 points at the time of writing, weighed by a slide in tech stocks

The Day Ahead:

While Europe reopens for business today, there are no material stats scheduled for release out of the Eurozone to provide direction for the EUR.

The lack of data will leave the markets to consider the current geo-political risks that are circling above the Eurozone. German Chancellor Merkel is looking to reform the grand coalition by mid-January and there will likely be more news hitting the wires over the Catalonia election and what lies ahead for Spain and Catalonia’s independence movement.

At the time of writing, the EUR was up 0.18% to $1.1879, as the Dollar continues to struggle for direction through the holidays.

For the Pound, data is limited to BBA Mortgage Approval figures, which are unlikely to have too much of an impact this morning. Progress on Brexit negotiations and how the UK economy performs will remain the key themes for the Pound in the coming months. We may even see Theresa May come under greater scrutiny from within the Tory Party.

The good news for now will be the resilience in the UK economy and should Brexit talks, trade in particular, go well, the British government and UK economy may well have dodged a bullet. There’s still a long way to go though and the transition period for Britain to be free from EU regulations will also be a factor for the markets to consider.

At the time of writing, the Pound was up 0.07% to $1.3383, with little likely to influence the Pound through the day.

Across the Pond, economic data out of the U.S this afternoon includes December’s CB Consumer Confidence figures along with November’s pending home figures. Dollar weakness has certainly been a theme in recent months and, while the markets may have expected a Dollar rally off the back of the tax reform bill, the dovish FED poured cold water on any policy driven moves. In the last minutes, the FED was clear in the fact that it had considered the tax reform bill in its rate path projections. The fact that the FED has held on to a 3 hike projection is the disappointment and Trump may struggle to deliver on other growth policies, unless they are self-funded.

At the time for writing, the Dollar Spot Index was down 0.07% to 93.175, giving up gains from earlier in the day, with today’s stats forecasted to be Dollar negative.

This article was originally posted on FX Empire

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