Talking Points:

  • US Dollar reclaims haven bid as most AsiaPac stocks follow Wall St lower
  • British Pound down as Tory MPs mount challenge to UK PM Theresa May
  • NZ Dollar under pressure as Greens and Labour clash on TPP ratification

The US Dollar returned to the offensive in Asia Pacific trade, rising alongside 10-year Treasury bonds while most regional stock exchanges slumped. The MSCI Asia Pacific equities benchmark shed 0.4 percent in a move that seemed to echo Friday’s drop on Wall Street. That move reportedly reflecting ebbing confidence in US lawmakers’ ability to deliver on corporate tax cut legislation.

Seeing the greenback playing a safe haven role is somewhat unusual in recent months, especially in response to fading fiscal stimulus hopes. Indeed, an underwhelming Senate tax reform proposal was a major headwind last week. It will be curious to see if this dynamic continues to hold now that a Fed rate hike is all but completely priced in for December’s policy meeting.

The British Pound traded broadly lower as markets reacted to news of a brewing revolt within the ruling UK Conservative party. As many as 40 members of Parliament reportedly signed a letter saying they have lost confidence in Prime Minister Theresa May. That is nearly enough to trigger a leadership challenge, complicating already sluggish Brexit negotiations.

The New Zealand Dollar also faced selling pressure. Here too, politics seemed to be culprit after reports that the Green Party will not support ruling Labour in voting to ratify a revised Trans-Pacific Partnership (TPP) trade agreement. That will force Prime Minister Jacinda Ardern to seek the support of the opposition National party, exposing potentially lasting fissures within the newly-minted governing coalition.

Looking ahead, a quiet economic calendar in European and North American trading hours leaves sentiment trends at the forefront. S&P 500 index futures are pointing cautiously higher, hinting that a bit of recovery in risk appetite might be ahead. Overnight moves imply that might bode ill for USD, although it is arguably premature to conclude that it is trading as a pure “risk-off” asset at this point.

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Asia Session

US Dollar Finds Haven Bid, Politics Sink Pound and NZ Dollar

European Session

US Dollar Finds Haven Bid, Politics Sink Pound and NZ Dollar

** 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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