Political turmoil in Britain wasn’t enough to decimate the pound sterling in yesterday’s forex market performance – although the dollar, yen and other global currencies found themselves in flux.
The pound managed to enter positive territory briefly on Tuesday despite the fact that Prime Minister Theresa May found herself besieged by several government resignations.
Although the resignations have caused problems for the Prime Minister, it’s also thought that the departure of two key pro-Brexit ministers, David Davis and Boris Johnson, will actually increase the likelihood of a softer Brexit, and better than expected ties with the Eurozone going forward.
Elsewhere, however, no such stability was on offer.
As the Asian markets opened early on Wednesday, there was evidence that the escalating tariff war between the United States and China was finally starting to bite. The issue was then exacerbated after President Donald Trump announced that his government was considering imposing an additional USD $200bn in tariffs on Chinese goods.
However, while the dollar managed to preserve good performances in some currency pairs, the move was on the whole enough to knock it – especially for the US dollar and Japanese yen pair, which rose then fell. While it originally managed to exceed the 111-point in the chart, it then dipped again.
One issue as Wednesday’s trading gets underway lies in the fact that the Chinese foreign ministry has not yet released any comments on how they plan to respond to the tariffs – if at all – meaning that markets are hesitant to act.
Ten-year Treasury yields in the USA, though, performed strongly yesterday. They rose from 2.86% to 2.87%, while the two-year yields surged even further from 2.56% to 2.58%.
The relative absence of significant data releases, however, meant that the market was less volatile than it perhaps would otherwise have been. Other than a small piece of US joblessness data which saw a decline of 200,000 in the number of work vacancies in May, Tuesday saw very little in the way of information publication. The next big forex market information drop is likely to come on Thursday, when the USA’s consumer price index data is released.
Other significant events on the horizon include a series of July rate decisions, which could have a tangible impact on the performance of the forex markets. In terms of major economies, the Bank of Canada is likely to push up its overnight rate to 1.5%.
Senior officials at the bank have already hinted very strongly that a rate rise is on the cards.
“Given where the economy is, we’re in a situation where the economy will warrant higher interest rates,” said Bank of Canada Governor Stephen Poloz last month.
Emerging markets will also be making rate decisions soon, especially in Asia, where rate rises could feed into the current instability of the Asia-Pacific region’s currencies.
Today, Bank Negara Malaysia will make its decision, for example. Although it is widely expected to preserve its current benchmark rate of 3.25%, a position it has occupied since it was raised in January.