Global markets are continuing to react to President Trump’s “fire and fury” North Korean threats yesterday afternoon. U.S. stocks closed lower for the first time in two weeks and European and Asian equity markets followed the “risk-off” sentiment overnight. Safe-haven currencies as the Japanese yen and the Swiss franc have also rallied as investors seek refuge. The Bloomberg Spot Dollar Index is mostly unchanged as losses against the yen and franc were balanced out by small gains against other European counterparts.
With light data and no Fed speakers on today’s docket, North Korean headlines may continue to dominate overall sentiment. Tomorrow, the producer price index will cross the wires early and then the Federal Reserve’s William Dudley will hold a press conference at 10 a.m. and may give traders something new to focus on. The largest risk event of the week remains Friday’s consumer price index. Higher inflation may increase bets the central bank will raise rates again in December which would lift the greenback.
The Japanese yen was a major beneficiary of the rekindled war of words between the United States and North Korea. The safe-haven currency rose over half a percent against its American counterpart and touched its strongest level since mid-June. The yen would have to strengthen an additional 1.5% to break its lows of June 14th.
Historically, when tensions between the U.S. and the Rogue state have intensified, the Japanese yen has over performed. With U.S. stock futures pointed towards a lower open, the yen’s run may continue throughout today’s session.
Despite wild overnight volatility, the Sterling opened today mostly unchanged and unable to recover from yesterday’s losses. Traders have blamed the volatility on light, summertime trading ranges. The Sterling lost yesterday after a report showed retail sales slowed in July, adding concern surrounding the uncertainty of Brexit. Industrial and manufacturing output will be reported tomorrow.