Risk Aversion Grips Markets: USD Price Up, EUR and GBP Down
Market risk: news and analysis:
- Financial market sentiment is souring Tuesday, helping haven assets such as USD and JPY, while government bonds are shunned.
- Confidence has not been helped by the IMF, which has lowered its growth forecasts.
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Trading sentiment worsens
Safe-haven assets are in demand in Europe Tuesday, boosting currencies such as USD and JPY, after the International Monetary Fund cut its world economic growth forecasts and China allowed its currency, the Yuan, to weaken.
Whether the souring of sentiment will persist is an open question but for now traders are cutting their exposure to riskier assets and selling government bonds. In Europe, London’s FTSE 100 is up 0.08% in early trade, with Germany’s DAX up 0.26% and France’s CAC 40 up 0.33%. However, the yield on the 10-year US Treasury note has risen to 3.252%, its highest since May 2011, and the yield on the European benchmark 10-year German Bund has climbed to 0.560%.
In the currency markets, the USD has been the main beneficiary, with markets spooked by news that the IMF has cut its global economic growth forecasts for 2018 and 2019, saying that trade policy tensions and the imposition of import tariffs are taking a toll on commerce while emerging markets struggle with tighter financial conditions and capital outflows.
At the same time, confidence has been undermined by a Chinese central bank decision to fix the Yuan at 6.9019 per Dollar, so breaching the 6.9000 barrier and leading speculators to push the Dollar up to 6.9120 in the spot market.
The strength of USD has been particularly noticeable against the Euro, which continues to fall on continuing concerns about Italy’s budget.
EURUSD Price Chart, Five-Minute Timeframe (October 8-9, 2018)
Elsewhere, the Japanese Yen, which like the Dollar is seen as a safe haven, is also broadly firmer, while the price of haven Gold is largely holding its ground against the USD. By contrast, the Pound is weaker again as traders continue to worry about the Brexit negotiations between the UK and the EU.
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--- Written by Martin Essex, Analyst and Editor