Dollar hits 16-month high, yen boosted by risk off sentiment

Lloyd Doyle
November 14, 2018

The euro and sterling climbed higher this morning as investor confidence rose on news Britain had struck a draft divorce deal with the European Union after more than a year of talks.

In the United States, the Dollar continues to strengthen as FX traders position themselves for a very probable December interest rate hike from the Federal Reserve Bank.

The CME group's FedWatch tool puts the probability of a December rate hike at 75 percent. Against the euro, the pound is up 0.12 per cent.

The dollar index, a gauge of its value versus six major peers, traded at 97.60, sitting just shy of its 16-month high of 97.69 hit on Monday. USA equity futures are off their lows and Asian shares have recovered, which is why the yen is struggling so far but Treasury yields are lower as we begin the day and there are still some hints of nervousness ahead of the European cash equity market open - following Wall St's decline overnight.

But analysts believe that the yen will strengthen thanks to its safe-haven status if global risk sentiment worsens."The yen will now have a greater safe haven pull than the dollar if equities witness a further correction. We see dollar/yen downside in that scenario", said Nick Twidale, chief operating officer at Rakuten Securities. It was the largest one-day percentage decline for the contract since September 2015.

In volatile trading, sterling fell to a 1-1/2 week low of $1.2827 as negative headlines over the last 48 hours punctured growing optimism last week that an agreement between Britain and the European Commission was imminent.

Until the Brexit is a "done deal in March 2019", FX traders will have little choice but to ride a wave of uncertainty. Rome's first budget proposal for 2019, including a ballooning deficit, was rejected last month.

Neil Mellor, currency strategist at BNY Mellon, was also wary, warning Prime Minister Theresa May still had to convince party members as well as the Northern Irish Democratic Unionist Party (DUP), which props up her minority government.

It later rose about half a percent from the day's low on a Financial Times report citing the European Union's Brexit negotiator Michel Barnier as saying the main elements of a deal were ready. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy.

Other reports by Iphone Fresh

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