U.S. Dollar Keeps Gains from Fed Hike, but Yen Rises on Trade Surplus

USD

The U.S. Dollar is strong this morning across the board with the exception of falling to the Yen over the weekend. As 2016 comes to a close, traders are hitting the brakes and markets are certainly quieter worldwide. The greenback is benefitting greatly from the Fed’s hike of 25 basis points last week, the central bank’s second tightening move in close to a decade.

Last Wednesday marked an important event since the 2008 in which it is clear the U.S. economy has advanced enough since then to start feeling confident. We shall see. Trump’s anti-trade rhetoric as well as blatant accusations against major powers could turn the tide as market participants reassess their portfolios under a Trump regime.

We look forward to the Bank of Japan meeting tomorrow, a very heavy data day on Thursday, and any surprises ahead of the holidays’ weekend. USD up 2.5% thus far in December against its 10 major peers, per the Bloomberg Dollar Spot Index.

 

GBP

Pound Sterling is down as new serious political developments threaten not just Britain’s participation in the European Union, but its existence as the United Kingdom. Scotland wants out. First Minister Nicola Sturgeon is trying to maneuver a way for Scotland to remain a part of Europe’s single market, arguing that her nation voted against Brexit.

More importantly, the Scots are furious that 2 years ago they voted not to separate from the UK because London’s government guaranteed that independence would affect Scotland’s own ability to remain a member of the EU. As it turned out, UK put its membership in the hands of the British people and the Scots overwhelmingly opposed.

“Scoxit” seems an option Sturgeon wants to push for saying, “Independence must remain an option for safeguarding our European status, if it becomes clear that our interests cannot be protected in any other way.”

 

JPY

With markets getting quiet, JPY rose on its safe-haven status. Imperative to note, the BOJ meeting tomorrow could end up causing the currency to appreciate if the 2016 “up-no-matter-what” trend continues. Regardless of the policy decision, every meeting this year has led to advances for Yen.

Japan’s current trade surplus, achieved for the third month in a row, and hawkish language from BOJ governor Haruhiko Kuroda could reverse recent JPY losses. However, many investors see policy divergence as a potential driver of Yen depreciation as we move into 2017.