European Summary and Highlights 16 Jan
The USD made strong gains through the European morning session, helped by a rise in US yields.
European morning session
The USD made strong gains through the European morning session, helped by a rise in US yields. GBP and the JPY showed the most pronounced weakness, both losing around 0.4%. GBP/USD hit a low of 1.2626, while USD/JPY peaked at 146.75. but the USD was higher against all the G10 currencies. EUR/USD fell 40 pips to 1.0880, AUD/USD lost 20 pips to 0.66, and USD/CAD gained 20 pips to test 1.35.
The main news was the UK labour market data, which showed a significant drop in y/y gains in the ONS November data to 6.5% y/y including bonuses, while the HMRC December data showed a m/m decline in wages. EUR/GBP rise modestly on the news, gaining round 10 pips to 0.8620, with the market consensus having expected only a slightly smaller decline. The employment data were more neutral, with the 3m/3m change in employment slightly higher than expected at 73k in November, and the unemployment rate falling to 4.2%. But the HMRC payrolled employment data for December showed a decline of 24k.
Asia session
On Tuesday Asia session, it was reported that Iran had fired missiles into Iraq with consequent fatalities and was close to the US Consulate in Erbil. Moreover, a branch of Iranian Armed Forces are also exhibiting hostile behavior to merchant ship in the Red Sea. This is no doubt a further escalation of geopolitical tension around Middle East and see risk asset take a nosedive as it is hard to see the U.S. not retaliate. USD is trading broadly higher on haven bids. And as commodity also being soft, there is no support for the Aussie and AUD/USD is trading 0.72% lower at 0.6611, NZD/USD is also 0.52% lower at 0.6168 while USD/CAD rose 0.39%.
U.S. Treasury Yields are higher across the curve so as JGB yields for it looks like a sell everything market in sight of heightened geopolitical tension. USd is outbidding the JPY when market participants are searching for haven. We are also hearing from the Japan business federation chief that he strongly ask firms to push forward with wage hikes and PPI beats estimate to rise 0.3% m/m. USD/JPY is quickly approaching last week high to trade 0.35% higher at 146.19. Elsewhere, EUR/USD is 0.28% lower and GBP/USD is 0.37% lower.