Forex Signals - Dollar Up, Focus on Thursday’s ECB meeting

Forex Signals - Dollar Up, Focus on Thursday’s ECB meeting – The dollar was up on Tuesday morning in Asia, with moves subdued ahead of Thursday’s European Central Bank (ECB)’s meeting.

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Although ECB’s policy decision, to be handed down that day, is widely expected to remain unchanged, the focus will be on the bank’s inflation forecasts and whether there are concerns over the euro’s strength.

The U.S. Dollar Index, which tracks the greenback against a basket of other currencies, edged up 0.13% to 93.168 by 9:53 PM ET (2:53 AM GMT), with trades thinned by the Labor Day holiday.

The euro slipped from a two-year high, reached at the beginning of September, in the wake of ECB chief economist Philip Lane’s comments about the single currency’s level during the previous week.

Some investors were optimistic about the dollar’s prospects ahead of the meeting.

“The ECB could raise more concerns over a further appreciation in the euro and make some downward revisions to its inflation projections," which would flag easier policy, Commonwealth Bank of Australia (OTC:CMWAY) currency analyst Kim Mundy told Reuters.

“In our view, the dollar can lift further over the remainder of the week because of the possibility the ECB takes a sharper dovish turn,” Mundy added.

The USD/JPY pair inched up 0.03% to 106.28. Yoshihide Suga, the frontrunner to succeed incumbent Shinzo Abe as prime minister in leadership elections scheduled for the following week, hinted at snap elections. On the economic front, data released earlier in the day showed that Japan's GDP contracted 28.1% year-on-year during the second quarter, beating the 28.6% drop in forecasts prepared by but far below the previous quarter’s 2.2% fall. But other indices, such as July's household spending year-on-year and the current account, missed their forecasts.

The AUD/USD pair inched up 0.08% to 0.7280 and the NZD/USD pair inched up 0.01% to 0.6691.

The USD/CNY pair inched up 0.06% to 6.8338. U.S.-China tensions continued to simmer after U.S. President Donald Trump told a White House news conference on Monday that he intends to curb the economic relationship between the two countries.

The GBP/USD pair edged down 0.16% to 1.3146. U.K. Prime Minister Boris Johnson is reportedly contemplating legislation to override the country’s Brexit withdrawal agreement with the European Union (EU). The news triggered an EU warning that there would be no deal if the U.K. went ahead with the move, increasing the prospects of a hard Brexit yet again. Fresh talks between the U.K and the EU will be held later in the day.

Some investors questioned the motives behind Johnson’s announcement.

“The key question for markets is whether the remarks are still mostly brinkmanship as negotiations near the finish line,” NAB economics director Tapas Strickland told Reuters.

“The mild market reaction suggests markets think so and still sniff a deal,” he added.

(Bloomberg) -- It’s looking good for the U.K.’s first bond sale through banks since June, not least because of the latest saga in trade talks between the nation and European Union.

This week’s offering of 15-year debt should attract investors seeking safety in sovereign securities amid concern Britain is headed for a no-deal Brexit, according to ING Bank NV. The prospect of increased bond buying by the Bank of England by year-end should also spur demand, said Antoine Bouvet, senior rates strategist at the bank.

Benchmark U.K. gilts gained Monday following a report suggesting Prime Minister Boris Johnson’s administration is preparing to end the Brexit transition period without an economic agreement with the EU. Last week, BOE Deputy Governor Dave Ramsden told lawmakers that the central bank has the capacity to increase the pace and size if needed.

“On the one hand, the last BOE meeting boosted market hopes of another round of quantitative easing and seemed to downplay the odds of negative rates,” Bouvet said. “On the other, the approaching Brexit deadline and trash talking ahead of the next round of negotiations is dampening risk appetite,” prompting investors to favor safer assets, he said.

Record Borrowing

Such conditions look set to spur a narrowing of the yield premium on longer-maturity gilts over shorter-dated ones -- and that prospect should support demand at the planned issuance, he added. The sale may be held as early as Tuesday. Barclays (LON:BARC) Plc estimates the sale size at 4 billion pounds ($5.3 billion).

The offering is the first to be arranged by banks since a 30-year bond was sold in June. A similar syndication of 10-year notes in May attracted record orders in excess of 82 billion pounds. They’re part of the U.K.’s plan to sell an unprecedented 385 billion pounds of debt this financial year to fund a surge in fiscal spending to counter the economic shock from the coronavirus.

Syndications have been an increasingly popular way to issue debt this year as governments ramp up borrowing to fight the pandemic, as the method allows larger-than-usual amounts to be raised. Banks involved in the deal agree to underwrite the offering in return for fees, avoiding the embarrassing possibility of failing to find sufficient demand.

The U.K.’s Debt Management Office said the securities on offer this week will have a 0.625% coupon and mature in July 2035. That compares with a yield of 0.51% for 15-year notes in the secondary market.