Markets appeared to be in a holding pattern ahead of Thursday’s UK referendum with only modest changes in financial prices. The NZD and AUD held their own against a modestly stronger USD, while the Yen and Euro underperformed.
Fed Chair Yellen testified on monetary policy to the Senate Banking Panel. Coming so soon after her press conference last week, there wasn’t an expectation of much new and the lack of market reaction suggested that was the case. The message remained one of proceeding cautiously with tightening monetary policy, with no timeline given. Both the WSJ and Bloomberg write-ups suggested a subtle change in tone, such as adding qualifiers to her optimism on the economic outlook.
That subtle shift in tone didn’t prevent a modest recovery in the USD, with various USD baskets up in the order of 0.3%. At the same time, ECB Chief Draghi was speaking at the European Parliament, and his noting of subdued inflation dynamics and willingness to provide more stimulus added a downside bias to the EUR. EUR/USD traded down 0.5% to 1.1255.
After tracking sideways over the local trading session yesterday, the NZD lifted around early evening, reaching a peak of 0.7169, its highest level in a year. This morning it trades at 0.7145. AUD traded up through 0.75, but has settled back down to 0.7470. Yesterday’s RBA minutes only had a brief transitory positive impact on the AUD. NZD/AUD remains in the tight trading range it has been in since the post-RBNZ MPS surge, and currently sits at 0.9565.
GBP tracked higher through to late last night, reaching a peak of 1.4783, before a new poll saw it track lower again. It’s now down slightly on the day, and trades at 1.4665. The latest IG/Survation poll put “Remain” at 45% and “Leave” at 44%, suggesting that the vote remained a close call. That gave some food for thought after the strong rebound in GBP on Monday.
After its recent strong run, the Yen is the weakest of the majors, with USD/JPY up 0.8% to 104.80.
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