Forex Weekly

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Pier-Luigi Bonelli Foreign Exchange Advisor
José-Manuel Luna Foreign Exchange Advisor
Ugo Biancaniello Foreign Exchange Advisor

The USD has made gains across the board over the past week. This was supported by the shift higher in US rate expectations helped by comments from Fed Chair Yellen this week, suggesting a December rate hike was on the table. The market is now pricing almost a 70% probability of a hike in December.

In the UK, Theresa May’s speech on 22 September was a good deal more dovish than those that came before, the intention clearly being to revive negotiations with the European Union. However, the Prime Minister was short on details as regards Britain’s positions concerning the main contentious issues. What was made clear, on the other hand, is that Theresa May wants a transition period, during which conditions would be the same as now. The Prime Minister also wants to open negotiations over a trade agreement as soon as possible. The Labour Party’s annual conference, held in Brighton, came to an end on Wednesday. Jeremy Corbyn explained that he wanted powers returned from Brussels to support a new industrial strategy 

In Japan, less than three days after the snap election announcement, the political landscape is changing rapidly. What looked like a confidence vote for Prime Minister Shinzo Abe has now turned into a much more interesting race. The emergence of the new 'Party of Hope' led by Tokyo Governor Yuriko Koike, whose Tokyo First Party beat the Liberal Democratic Party (LDP) at the Tokyo assembly elections in July, has received the keen attention of financial market participants. The results of the elections will be closely followed (due 22 October), as any doubts about the direction of Abenomics, including the Bank of Japan's extremely easy monetary policy, could have repercussions in markets and indeed the economy.

All eyes are on the next Riksbank CB meeting (26.10.17), will the CB follow the Bank of Canada and the Bank of England in surprising markets with a sudden hawkish shift? Macro investors have long seen Swedish monetary policy as a dovish outlier, and the expiration of Governor Ingves’ term at the end of the year has generated fresh speculation of a potential change.