 Sterling was the weakest one last week as it suffered persistent selloff ahead of UK Prime Minister Theresa May's announcement on resignation. The Pound has indeed stabilized since then after the speculation was realized. Without May, the Brexit path ahead becomes even more uncertain. The key lies on who May's successor would be. Brexit hard-liner Boris Johnson is the favorite. But we'd doubt how much support he'd get from Conservatives on this specific issue of Brexit. More importantly, even if Johnson would prefer no-deal Brexit, we'd doubt if he can get this through the parliament. So far, to the general public, he doesn't display any more charisma than May. Dollar was the second weakest one as dragged down by free fall in treasury yields. Escalation in US-China trade war was seen as a key factor of risk aversion. But firstly, Dollar's performance was not disastrous and only displayed clear bearishness against Yen and Swiss Franc. Secondly, the global stock markets weren't in crashes despite some volatility. We'd argue that the worst is not being priced in the markets yet. Swiss Franc and Yen were among the strongest ones for the week, on falling yields, rightly so. But Australian Dollar was a surprised second. RBA Governor Philip Lowe indicated that June is probably the time for another rate cut. After that, Westpac revised their forecast to predict three cuts this year. Surprised win of Liberal-led coalition gave the Aussie a solid base. It's further boosted by strong rally in iron ore prices. One these two factors fade, Aussie will be back under pressure. |
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