While markets were focused to see whether geopolitical risks would ease later on Monday after North Korea announced its successful test of a powerful weapon on Sunday, risk-off sentiment rose again instead, following rumors that North Korea was preparing for another intercontinental ballistic missile test. The dollar dipped into further losses, unable to find support as US and Canadian markets were closed for the Labor Day holiday.
According to South Korea’s central news agency, the North Korean regime was speculated to be planning another intercontinental ballistic missile test into the Pacific Ocean. If this is true, the rising tensions between North Korea and the US might lead to military conflict. This came after the North Korean regime fired successfully its sixth and most powerful nuclear weapon on Sunday which was described to be a hydrogen bomb. Donald Trump answered back with a warning to cut any trade ties with nations doing business with North Korea, including China. China’s foreign prime minister Geng Shuang responded to the sanction threats, saying that Trump’s comments were "neither objective nor fair".
The dollar weakened further against its major peers in the wake of the news, sinking to 92.45.
Demand for safe havens remained strong, with dollar/yen and dollar/swissie trending near the day’s lows. Dollar/yen was last trading at 109.58 while dollar/swissie was last seen at 0.9552.
The euro slowed down its progress made earlier in the Asian session despite the Sentix index released in early European session showed that investors’ assessments of Eurozone’s economic conditions improved. The index jumped by 0.5 points to 28.2 in September, exceeding the forecast of 27.4. The main driver of this positive adjustment was the optimism among investors about the future economic developments in the region, with the sub-index which captures expectations for the next semester rising by 1.3 points to 17.3. In contrast, current conditions were less favored as the corresponding index ticked down by 0.2 points to 39.8. Despite recent data proving that economic activity in the block is speeding up, markets expect the ECB to hold interest rates steady at the completion of its two-day policy meeting on Thursday and express its concerns over a strengthening euro as the latest comments from ECB policymakers have highlighted. Moreover, the ECB is also expected to start discussions on winding down its massive asset purchases during the meeting but the announcement on the decision will be probably made in October.
Sterling reversed some of its earlier losses against the greenback, to last trade at $1.2954. However, political woes continued weighing on the currency. After the third round of formal Brexit talks, last week didn’t lead to a breakthrough in major subjects including the UK’s financial obligations to the EU block after the exit. The UK Parliament is set to debate an EU repeal bill on Thursday. During the weekend, the UK prime minister warned lawmakers that if her EU repeal bill was not supported in the parliament then the country would be faced with a "cliff edge". British Finance minister Philip Hammond also argued on Monday that legislation should not be delayed as this would harm countries ties with the EU.
Furthermore, data out of the UK showed that construction firms experienced the slowest growth in a year in August. This was particularly due to an investment downturn in the commercial sector. The Markit/CIPS construction PMI fell by 0.8 points to 51.1, below the 52.0 forecast.
The aussie failed to gain ground versus the dollar, edging down to $0.7948 and being down by 0.24% during the day, following the disappointing figures on business inventories published on Monday. This comes a day before the RBA launches its policy meeting on Tuesday, where it is expected to keep rates unchanged at a record low for a considerable period of time, as policymakers are among others concerned about the currency’s strength.
The loonie pared its gains, with dollar/loonie rising to 1.2417.
In commodities, oil prices were up, while gold was hovering below its 11-month high reached in the Asian session. WTI crude futures for October delivery touched a one-week high of $47.61 per barrel, whilst Brent rebounded to $52.73 after reaching an intra-day low of $51.96. Gold paused its upside movement, which led the precious metal to an 11-month high of $1,339.56 per ounce earlier today, last trading close to $1,335.00, up 0.7% on the day.
