Yen Rally May Resume Amid US Government Shutdown Fears
TALKING POINTS – YEN, TRUMP, US GOVERNMENT SHUTDOWN, UK GDP, POUND
- Yen may turn higher Washington DC turmoil stokes risk aversion
- Possible US government shutdown threatens fragile growth outlook
- UK Q3 GDP revision unlikely to mean much of the British Pound
Most major currencies marked time in quiet Asia Pacific trade, with markets seemingly enjoying a lull in high-profile scheduled event risk after two days of breakneck volatility. The Japanese Yen narrowly underperformed, retracing the prior session’s impressive gains.
Another bout of risk aversion may revive the perennially anti-risk currency’s fortunes however. Bellwether S&P 500 futures are pointing conspicuously lower ahead of the opening bell on Wall Street, suggesting sellers may retain the initiative through the end of the trading week.
That is understandable. President Donald Trump has revived the threat of a government shutdown Friday by refusing to sign a stopgap budget bill absent funding for a wall along the border with Mexico. The abrupt resignation of Defense Secretary James Mattis adds to worries about turmoil in Washington DC.
Mr Mattis struck a sharp contrast between his policy views and those of the President on the way out. That followed an unsuccessful attempt from Treasury Secretary Mnuchin to jawbone markets higher amid recent selling. In all, this paints a worrying picture for the administration.
If the embattled Mr Trump channels his displeasure with current events into a perceived show of strength on border security, a shutdown might be unavoidable. Traders are likely to see such a fiscal headwind as eminently inconvenient at a time when growth is already slowing, pushing risky assets.
The final revision of third-quarter UK GDP data headlines the data docket in European trading hours. The outcome is unlikely to mean much for the British Pound considering its limited implications for near-term BOE monetary policy, especially since the central bank opined on the outlook just earlier this week.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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