Pound Reaches Post-Election Low as Dollar Gains for Second DayBy and
Carney douses rate hike talk, repeats Brexit, wage concerns
Commodity FX pressured as WTI crude falls to 7-month low
The pound dropped to a post-U.K. election low after Bank of England Governor Mark Carney doused expectations for a rate hike any time soon.
The dollar’s gain of as much as one percent against the pound paced the greenback’s advance versus most of its G-10 peers. Commodity FX also held a defensive tone as WTI crude oil fell to a seven-month low on concerns over rising oil inventories. Flows were modest outside of the pound, traders in London and Europe said.
- In a speech at the Mansion House that was delayed from last week, Carney said that now is not the time to raise rates because of still-weak wage pressures and uncertainties over Brexit. His comments stamped out speculation over a hike that had built in the aftermath of the 5-3 MPC vote last week to keep rates on hold. The pound had gained last week as traders interpreted the additional dissenting votes as indicating a hawkish shift on the policy committee amid above-target inflation. GBP was further pressured Tuesday after S&P said it may act on the U.K.’s credit rating before the conclusion of Brexit talks, which started this week
- As the pound was dropping, so too did commodity-sensitive FX such as the Canadian and Australian dollars. At the same time, U.S. Treasury yields fell to a new low for the day amid choppy trading, further complicating the FX picture by taking some steam out of the USD rally. The Bloomberg dollar index rose as much as 0.36%, while the yield on the 10-year Treasury fell as low as 2.151%
- GBP/USD fell to 1.2604, its lowest since April 18, filling bids at 1.2635/40 along the way, according to traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. The pair breached technical support at the 100-DMA 1.2631 that had held declines since April 11, opening potential for a move toward the 200-DMA at 1.2558
- EUR/USD fell to its lowest since May 30 at 1.1119, filling bids at 1.1140 while breaching technical support from the June 15 low 1.1132. EUR is expected to find further bids near 1.1110, the May 30 low, though stop-loss sell orders are in place below there, according to traders
- USD/JPY is trading ~111.47, paring an early drop to a new session low of 111.31, as the USD tone broadly improved. Earlier in the day, a dollar rally peaked at 111.79 as offers at 111.80 that are layered to 112.00 capped gains. USD/JPY stalled near technical resistance from its 100-DMA at 111.85 despite USD buying by Japanese importers, traders said