Talking Points:

  • Yen gains, Aussie Dollar drops as risk aversion sweeps the markets
  • Investors’ mood soured on deepening US political instability fears
  • British Pound unlikely to find a lasting lead in jobless claims data

The anti-risk Japanese Yen outperformed while the sentiment-sensitive Australian Dollar traded broadly lower as Asian shares followed S&P 500 futures downward. The markets’ mood rapidly deteriorated after reports that ousted FBI Director James Comey wrote a memo detailing a meeting where President Trump asked him to drop the probe into former national security advisor Michel Flynn’s ties to Russia.

The bombshell follows earlier reports that Mr Trump shared classified intelligence with senior Russian officials visiting the White House last week. Traders appear worried that mounting scandals engulfing the administration may derail plans for expansionary fiscal policy that had been expected to boost corporate earnings and push the Fed into a steeper rate hike cycle, a narrative dubbed the “Trump trade”.

Futures tracking top European and US equity benchmarks have sunk deeply into negative territory in Asian trade, hinting that the risk-off mood is likely to carry forward in the hours ahead. However, the markets are understandably vulnerable to stray headline risk at present, so making the case for follow-through one way or another seems like a foolish proposition in the near term.

UK jobless claims data headlines the European economic calendar but the outcome seems unlikely to inspire much of a response from the British Pound considering its limited implications for near-term BOE policy. The central bank seems determined to observe from the sidelines, wary of changing course while the impact of Brexit proceedings remains clouded.

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Asia Session

Yen Soars Amid US Political Instability Concerns

European Session

Yen Soars Amid US Political Instability Concerns

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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