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Forex today: Pound sinks on hard Brexit fears while dollar yields decouple ahead of Trump address

[Published: 2019-02-05T23:57:07Z] [Author: Ross J Burland] [Powered by: NewsAPI.org]
Forex today was seeing a weak pound, the weakest in the G10 given the weak services PMI, and Prime Minister May’s comments that she would not ask for the backstop to be removed at her meetings in Brussels later this week. The US dollar was mostly firmer despite lower US yields. However, in general, markets were quiet, given the Chinese New Year holiday and the major currency pairs were confined to narrow ranges.

Fixed income found some support and corrected the sell-off late last week. The benchmark yield on the US 10-yr note fell modestly, back to 2.70%, while 2yr yields ended slightly lower, around 2.52%. As analysts at Westpac pointed out, "Futures markets continued to price little chance of any further Fed rate hikes in this cycle, with a 10% chance of a hike in December and a 10% chance of a cut."

As for data, the US ISM services sector PMI was lower due to the partial government shutdown and trade uncertainties. The composite index declined to 56.7 from 58 while the Markit’s final PMI for January was left unrevised at 54.2. 

The benchmarks were trading to their highest levels in two months ahead of President Donald Trump's State of the Union address.

Currency action

Analysts at Westpac offered a breakdown of the key movers in the g10's:

"Underperformer GBP fell from 1.3050 to 1.2926, commencing its decline on poor data. The UK Dec service PMI slipped to 50.1 (est. 51.0, prior 51.2), a 2 ½ year low, on the back of notably increased Brexit concerns. New orders contracted and employment fell. UK PM May delivered a Brexit speech in Northern Ireland in which she reiterated the government’s intention to reopen negotiations ...