Euro leaps to more than two-week high on Japan inflows

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12 April 2019


The Euro leapt to its strongest position in over two weeks against the US Dollar yesterday evening, an unusually sharp move during the generally less eventful Asian trading session.

n anticipated increase in demand for the common currency amid Japanese bank Mitsubishi UFJ Financial Group’s plan to buy a multi-billion Dollar aviation business from a bank in Germany was cited as the reason behind the rally. This pressured the Euro higher against all of its peers, with the currency breaking back through the 1.13 mark against the US Dollar this morning.

The move upwards in the EUR/USD rate this week has been helped by a tentative improvement in Eurozone data and weaker US core inflation data out on Wednesday. We also had some pretty dovish comments from Fed member James Bullard yesterday. Bullard stated that he believed the most recent US rate increase in December marked the end of the current hike cycle and that the word ‘patient’ recently adopted by the central bank should be removed for risk of indicating a tightening bias.

Aside from that, yesterday’s US producer price data and jobless claims were solid, although failed to have a lasting impact on the currency. With macroeconomic data out of both sides of the Atlantic mostly second tier, today could be a relatively quiet one in terms of major market-moving news.

Could a general election break the Brexit impasse?

Sterling traders remain largely unimpressed by the news of the six-month delay to Brexit on Thursday with the Pound edging back towards the 1.305 level against the greenback this morning.

As we mentioned yesterday, traders that had hoped for a longer, one-year delay were left disappointed. There is also no guarantee that May’s deal will pass before the new 31st October deadline, while a delay may open up the possibility of a general election. We believe that investors have taken on a fairly indifferent view towards the prospects of a general election.

As is generally customary, a snap election is bad news for the domestic currency, given that it presents the possibility of a deviation from the status quo. That being said, while a Labour victory or even smaller percentage share of the vote for the Tories presents itself as a near term risk, the possibility of a sizable victory or majority for either side would likely be good news for Sterling. A comfortable Tory victory would increase the chances of May’s deal passing in a parliamentary vote, while the formation of a Labour government could pave the way for a second referendum, widely seen as the best possible outcome for the UK currency.