Pound Lower

US Dollar strength has continued as the EUR/USD pair touched fresh 2018 lows. Euro managed to stage a slight recovery to finally settle near daily tops. The pair failed just ahead of the 1.1800 handle and in absence of any major market moving economic releases, with the USD price dynamics remaining a key determinant of the pair’s momentum on Tuesday. Euro is under pressure due to the tense political situation in Italy and this week, while financial market participants are waiting for the publication of the FOMC and ECB minutes on monetary policy. As the data calendar is light today, the pair remains at the mercy of the Italy-German yield spread and US-German yield spread.

The GBP/USD is still consolidating Monday’s move that saw the Pound flub against the US Dollar, and the pair is currently trading near 1.3420 ahead of Tuesday’s London session. The Sterling dropped into 1.3390 on Monday, a new low for 2018, and the bounce back has been limited, but the GBP/USD has managed to hang onto the 1.3400 level for now. Pound is facing and important week ahead. Starting from today the next Brexit negotiations session will begin in Brussels, while Inflation Report Hearings begin at 09:00 GMT. Overall inflation is expected to hold steady compared to the previous period at 2.5% while core inflation is expected to contract slightly from 2.3% to 2.2%.

The USD/JPY pair is on the retreat, tracking the decline in the US 10-year treasury yield and due to overbought conditions. The pair is currently trading at 110.93, having a hit a session low of 110.84, as the pullback in the US dollar and yield does not come as a surprise as the 10-year yield had created a bearish outside-day candle on Friday, signalling the rallies in yields and US dollar are due for a correction. USD/JPY is now resting-up with the Bank of Japan Governor Kuroda in the Japanese parliament today from 01:00GMT, albeit likely singing the same tune as per norm.

Crude oil prices rose as the markets’ mood brightened amid signs of de-escalation in US/China trade tensions, as expected. Interestingly, gold prices also rose as the exuberant mood translated into a weaker US Dollar. Commodity-linked and emerging market currencies geared to the global business cycle soared against the greenback, echoing as an overall down move. Also for crude oil, focus is on the weekly API inventory flow report. A larger outflow may boost prices while a smaller one – or even a surprise build – might pressure them downward. A resurgent US Dollar is likely to be a headwind either way.