No News Is Bad News for Major Currencies
Profit taking has hit the British pound and other major currencies today as the US political stalemate drags on, erasing the release of the much-anticipated non-farm payrolls report.
Currency markets were adrift on the last trading day of the week with little new economic data or fresh political news on the docket. GBPUSD was the weakest major overnight, having come under heavy profit-taking pressure after a long and sustained rally over the past several weeks.
The pair tumbled through the 1.6100 level as heavy selling on the Aussie and euro crosses contributed to the selloff. Although UK economic data has continued to show impressive results, the latest batch of PMI data showed a slight deceleration in activity, and that provided GBP longs the incentive they needed to take profits.
The only notable event risk overnight was the Bank of Japan (BoJ) monthly policy meeting, but it produced no news, and BoJ Governor Haruhiko Kuroda essentially stuck to the well-known script. Kuroda stated that the current BoJ policy was accommodative enough to meet policy targets, but he noted that the central bank stood ready to respond in case of any tail risk.
Kuroda also expressed concern about the US fiscal standoff, stressing that it could be destabilizing if it continues for much longer. He reiterated the BoJ is making progress towards its 2% inflation goal, and highlighted the fact that business sentiment has improved, as evidenced by the latest Tankan reading.
USDJPY saw little response, however, as it tested the lows near the 97.00 level but remained supported at that figure. The pair remains in a deep downtrend while hobbled by the ongoing crisis in Washington, which has put strong selling pressure on the buck.
It appears that 97.00 is a key support level for Japanese policymakers, and they are becoming increasingly concerned about the possibility of a move lower towards 95.00, which could begin to hurt the recovery in Japan’s all-important export sector.
With the US government still shut down, the much-anticipated non-farm payrolls (NFP) report will not be released today. That has left the markets in lurch, as we are now missing the key data point on the US economic calendar.
Although the dollar bounced due to profit taking by the shorts in Asian and early-European trade today, the lack of progress on the US budget negotiations is likely to put renewed selling pressure on the greenback if we go into the weekend with no signs of resolution.
On the other hand, as public patience for gamesmanship begins to reach its limit, the prospects for a deal could provide the dollar with a lift if markets get some encouraging rhetoric from Washington. For now, though, the currency markets remain dependent on political rather than economic developments.
By Boris Schlossberg of BK Asset Management
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.