12/04/2018 - Concern Over Military Action Feeds Risk Aversion - 12/04/2018

USD

The U.S. dollar slipped on Wednesday as uncertainty over possible Western military action against Syria fed risk aversion even as fears of a trade war between the United States and China faded.

U.S. President Donald Trump warned Russia of imminent military action in Syria over a suspected poison gas attack, declaring that missiles “will be coming” and lambasting Moscow for standing by Syrian President Bashar al-Assad. Syria concerns overshadowed easing U.S.-China trade tensions a day after Beijing promised to open its economy and lower import tariffs on products such as cars.

The dollar index, which measures the greenback against a basket of six major currencies, fell to a two-week low of 89.355. But it rebounded after minutes of the U.S. Federal Reserve’s last policy meeting showed policymakers felt that the U.S. economy would firm further and that inflation would rise in the coming months.

Earlier on Wednesday, data showed U.S. core Consumer Price Index rose 2.1 percent in March, the largest advance since February 2017, after increasing 1.8 percent in February.

GBP

Sterling has hit its firmest level against a trade-weighted basket of currencies since shortly after Britain voted to leave the European Union in June, 2016, data showed on Wednesday, as the pound enjoys broad-based gains.

Growing expectations of an interest rate increase next month and a recent agreement on a transition deal for when Britain quits the EU next year, coupled with dollar and euro weakness have prompted investors to load up on the British currency in recent weeks.

British manufacturing output fell unexpectedly in February, its first drop in almost a year, according to official figures that added to signs that the economy may have slowed in the first quarter. Wednesday’s data also showed another sharp drop in construction output, against expectations of a small rebound after a severe downturn in January.

However, with bets on sterling at their most bullish in years and forecasters predicting more gains, the lacklustre data will encourage some investors to take profits after the recent rally.

Key Announcements

12.30 – EUR – ECB Monetary Policy Meeting Accounts

20.00 – GBP – Bank of England Governor Speaks at the public policy forum’s growth summit in Canada