Asia Summary and Highlights 2 Feb
US media reported that U.S. President Joe Biden has approved plans for several days of strikes on targets that include "Iranian personnel and facilities" in both Iraq and Syria.
North Korea has fired several cruise missiles off its west coast
Asia Session
While geopolitical tension looks likely to escalate over the weekend as U.S. is expected to conduction military action against Iran, risk asset does not seem to be particularly taking a hit. Instead, the hope of a cease fire between Israel and Hamas had driven equity significantly higher in the second half of Thursday. With USD staying low and commodity steady, the AUD/USD is leading the pack with a 0.35% gains to trade at 0.6595, NZD/USD also caught a small bid of 0.11% higher at 0.6150 while USD/CAD slipped 0.08% to 1.3374 with oil clawing back 30 cents.
USD/JPY has quietly tread lower despite choppy USD trading and it does not seem to be derived from the change in risk sentiment as market participants has been favoring the USD when seeking haven for the past year. The key driver remains in yield differential which is expected to further narrow. Yet, it will not be a smooth path and we heard from Powell earlier in the week as he push back against early cut speculation and all eyes remain at the spring wage negotiation in Japan. USD/JPY is trading 0.04% higher at 146.47. Elsewhere, EUR/USD and GBP/USD is up 0.05%.
North American session
The USD fell back across the board through the North American session, with EUR/USD gaining around 70 pips and USD/JPY losing 70 pips, while GBP/USD was the best performer, gaining a big figure to 1.2750.
The USD suffered from another rise in initial and continuing claims, and further declines in US yields, despite a stronger than expected ISM survey of 49.1, where both new orders and prices paid saw significant gains above neutral. Lower than expected unit labour costs for Q4, up only 0.5% annualized, worries about the US banking sector, and lower oil prices also contributed to the decline. UST yields came off the lows later in the session, but only USD/JPY saw a significant correction.
GBP strength was helped by the Bank of England statement, which, although it removed the bias to tighten, still indicated that the current market pricing of a relatively hawkish Bank of England (compared to the Fed and ECB) was in line with its thinking.