The greenback reached a 10-week high against the Yen overnight as Treasury yields surged following strong US GDP for the fourth quarter of 2018. Having increased at a 2.6 per cent annualised rate, the data surpassed economists’ forecast of a 2.3 per cent gain.
The Dollar rose by nearly 0.3 per cent to 111.82 against the Yen – its highest level since 20 December 2018. The US currency gathered momentum after it breached technical resistance near the 200-day moving average of 111.30.
However, the greenback suffered brief dips against the safe-haven Yen this week as tensions between India and Pakistan flared and a summit between US President Donald Trump and North Korean leader Kim Jong Un was ended abruptly without an agreement.
In Brexit news, the Trump administration has taken an aggressive stance towards Britain, demanding greater access to the UK market for its agricultural products and guarantees that London would not manipulate its currency after it leaves the European Union.
The Office of the US Trade Representative yesterday, 28 February released its “negotiating objectives” for a possible trade agreement with the UK, suggesting the latter is unlikely to get softer treatment than other US allies. Another provision that could raise eyebrows would constrain the UK’s ability to secure a trade deal with a “non-market economy” such as China by creating a “mechanism to ensure transparency and take appropriate action”. This could allow the US to ditch its trade deal with the UK if it does not like the terms of any agreement London strikes with Beijing.
The tough US demands highlight the difficulties the UK could face in negotiating a trade deal with Washington, in contrast to claims made by leading Brexit proponents that it would be a smooth ride.
Sterling is holding around the seven-month high it reached this week as the UK looks more likely to avoid crushing out of the EU without a deal. The Pound is up 1.7 per cent, back above $1.33, since Theresa May outlined the voting options MPs will have on the terms of the UK’s departure from the EU. Sterling also strengthened against the Euro by 1.2 per cent. But there is no certainty the rally will last.
Analysts are feeling nervous, with some suggesting that in a hard Brexit scenario, Sterling could fall to $1.15 or lower, especially in the run-up to a general election or second referendum. With that in mind, investors may consider hedging Sterling downside risks over the coming weeks.
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