By Han Tan, Market Analyst at FXTM
Asian stocks are mostly lower Wednesday after US equities posted declines, as Brexit risks took hold of market sentiment in the absence of other major catalysts.
With investors keeping risk appetite in check, most Asian currencies are weaker against the US Dollar, but are gaining versus the Pound. Gold is inching towards the $1490 psychological level, while 10-year US Treasury yields extended Tuesday’s declines to reach 1.75% Wednesday morning.
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GBPUSD fell to sub-1.29 levels after Parliament blocked Prime Minister Boris Johnson’s pledge to deliver Brexit by October 31. However, the odds of a much-feared no-deal Brexit now appear less of a prospect, hence the muted drop in Sterling so far.
Despite Parliament agreeing to the general principles of Johnson’s Brexit deal for now, the exact date for the UK’s departure from the EU is still up in the air. There appears to be ambition among MPs to improve on the deal in hand, which could still sway the political support for the deal either way.
The latest twist in the Brexit saga also means that investors may have to contend with more political risk by way of a UK election. Given the various potential outcomes, future gains for Sterling are not assured, with politically-driven volatility set to continue in GBPUSD.
Incoming US economic data to help stabilise Dollar
The Dollar index (DXY) gained 0.3% and climbed back above its 200-day moving average, aided by the Pound’s drop, with Sterling playing its role as the primary driver for DXY in recent days.
The Greenback could see more support over the coming days, provided the incoming US economic data such as factory orders, jobless claims, and consumer sentiment do not stray too far from market expectations. Investors are now forecasting a 91.5% chance that the Federal Reserve will lower US interest rates by 25 basis points next week.
A signed US-China trade deal in November may take some pressure off certain sectors of the US economy, which could allow the Fed to back away from further policy easing after this month.
Deeper OPEC supply cuts could lift Oil prices onto higher plane
Brent futures briefly breached $60/bbl before moderating, following a report that OPEC producers are mulling deeper supply cuts at their next meeting. Considering that US shale output remains at record levels while global demand is expected to wane next year, tighter OPEC production would be welcomed by the bulls as such a move may translate into higher prices for Brent.
Oil has not been able to take full advantage of the weaker Dollar this month, when comparing its meagre 0.3% month-to-date rise versus the Dollar Index’s 1.9% decline during the same period.
Historically, the price of oil is inversely related to the price of the Dollar. Oil continues to be weighed down by concerns over diminishing global demand so currently needs all the help it can get if prices are to climb meaningfully higher.
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