Fri, Aug 12, 2022 @ 21:05 GMT
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Dollar Extends Losses as North Korea Story Gets Complicated; Euro Strengthens ahead of Catalonia’s Possible Independence Declaration

The dollar tumbled to just a shade above the 93 key-level against a basket of major currencies in the wake of news that North Korean hackers had stolen military documents from the South Korean defence ministry in September 2016, including South Korean/US war plans which involved to some part the formation of a military unit to eliminate the North Korean leader, Kim Jong Un. Moreover, speculation over North Korea launching a long-range missile test over the coming days also weighed on the greenback.

Meanwhile, in the US, a dark cloud shaded the future of tax reforms after officials from Trump’s inner cycle expressed their concerns that the president’s feud with the Republican Senator Bob Corker could hamper his efforts to turn tax proposals into law and therefore could add another legislative failure to Trump’s agenda.

Market watchers are also waiting for the minutes of the Fed’s September meeting to be released on Wednesday for more details on the path of interest rates and balance sheet reduction plans.

Safe-haven assets advanced as investors were seeking for less risky investments, with dollar/yen falling by 0.51% to 112.06, dollar/swissie retreating by 0.54% to 0.9743 and gold surging by 0.70% to $1,292.40 per ounce.

The euro reached a 1-½ week high of $1.1817 before it fell back to $1.1805 as traders were eyeing encouraging data out of the Eurozone, leaving political issues on the side for a while. Specifically, traders were pricing German upbeat performance in export activities which posted the highest growth since January 2017 in August and therefore eased concerns related to the rising euro acting as a drag on exporters. Moreover, improved business confidence in the block and recommendations from the ECB executive member Sabine Lautenschlaeger for the central bank to gradually start tightening asset purchases next year contributed positively to the euro.

On the political front, the Catalan leader, Carles Puigdemont, will address the regional parliament today at 1600GMT. The Spanish government fears that Catalonia’s parliament will unilaterally declare independence. Armed Catalan police forces have surrounded the area, while according to sources with a knowledge on the issue, Spanish police authorities are prepared to arrest Puigdemont if he declares separation from Spain.

In other news, the Netherlands, the fifth largest Eurozone economy, has agreed on a four-member coalition deal seven months since the elections that took place in March. The coalition will be composed of the ruling center-right VVD, the liberal D66 party, the centrist Christian Democrats and the conservative Christian Union and hold just a shade of majority – 76 seats in the 150-seat parliament.

Better than expected August readings on British industrial production gave a lift to the pound, though August’s trade deficit touched a record high, putting a break to the pound’s uptrend. Manufacturing output increased by 0.4% m/m, above the 0.2% expected. Construction output turned positive after four months of declining, expanding by 0.6% m/m compared to the -1.0% seen in the previous month and the projected 0.1%. Overall, industrial production matched expectations, rising by 0.2%, below the previous upwardly revised mark of 0.3%. Regarding trade balance, the goods and services deficit increased unexpectedly by 1.31 billion pounds to 14.24 billion.

Dollar/loonie changed hands at 1.2498, losing 0.40% on the day on the back of a weaker dollar and a mixed stream of housing data out of Canada. The loonie was also supported by rising energy prices. Canadian housing starts rose by 217.1k in September instead of the expected 210k, whereas building permits unexpectedly experienced the largest contraction since May 2016, falling by 5.5%.

Oil prices were heading higher during European trading hours in response to optimistic comments made by the OPEC’s Secretary General Mohammed Barkindo on Tuesday at the India Energy Forum in New Delhi. Particularly, Barkindo reiterated that some "extraordinary measures" might be needed to be taken next year in order to rebalance the market in the long term. However, he did not specify what these measures would be and if these include a further extension of the already-in-place cuts for an additional nine months after the pact expires in March. Besides that, Saudi Arabia’s statement on Monday of cutting November’s oil allocations by 560,000 bpd according to an oil spokesman helped boost oil prices. WTI crude was trading 2.50% up at $50.82 per barrel and Brent surged by 1.83% to $56.81 per barrel.

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