Dollar Falls Second Day; Pound Jumps on UK Budget
A dollar gauge declined for a second day, while the pound rallied as investors took comfort in the borrowing restraint in the UK budget. The yen was the only currency in the Group of 10 weakening against the greenback.
The Bloomberg Dollar Spot Index drops 0.2% to the lowest level since Nov. 19 and poised for the worst two-day drop in more than a month.
Investors are betting big that the Federal Reserve will cut interest rates again when policymakers meet next month.
GBP/USD rallied 0.5% to 1.3230
“Today’s highly anticipated budget avoided the major tail risks that could have hurt GBP, as the overall fiscal ‘headroom’ was increased, and there was no sign of near-term tightening that would have weighed more heavily on growth and added to Bank of England rate cut expectations,” Nomura strategists Dominic Bunning and Yusuke Miyairi wrote.
“Short GBP positions had been popular going into the budget, and these are likely to see some unwinding on the avoidance of the major negatives,” they said. “This could see EUR/GBP break some recent support levels”.
Strategists said they are taking profit on their long EUR/GBP trade with the gain of 0.6%.
EUR/GBP fell 0.2% to 0.8767
The UK budget statement “was not the fiscal train-wreck that many feared it would be,” wrote Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole. “The government was seemingly able to reassure gilt investors without sacrificing too much in terms of real economic growth”.
“The GBP will continue to take its cue from the price action in the UK FI markets and evidence that gilt yield continue to subside could encourage further short covering in the FX markets,” he said.
Yield on 10-year gilt dropped 7 basis points to 4.42%.
NZD/USD jumped 1.3% to 0.5692, best day since June 2.
New Zealand’s central bank cut interest rates while projecting no further reductions next year, sending the currency higher on bets a 16-month easing cycle is all-but concluded.
EUR/USD up 0.2% to 1.1596; the euro is supported a second day from flows looking for a broadly weaker dollar in the event that Kevin Hassett becomes the next Fed chair.
USD/JPY up 0.2% to 156.37; Japanese Prime Minister Sanae Takaichi’s likely goal will be to minimize new bond issuance in an extra budget to finance the ¥17.7 trillion ($113 billion) in fresh spending.
Source : Bloomberg.com
