The US dollar is flexing its muscles a second day in a row as it seems to get back its tendency to gain under a risk-off mode. Consequently, the Bloomberg US dollar index is already up by 0.4% while the New Zealand dollar and the Norwegian krone are among top losers. The former seems to remain under pressure following the general election’s outcome as coalition talks are expected to take much time while the final result of the voting is scheduled to be known on 7 October.
In turn, the latter is being depressed by declining oil prices which are giving back their yesterday’s gains. Notice, Brent crude prices got a boost on Monday after Turkey threatened with a closure of Iraqi oil pipelines based on Turkey on the back of the referendum in Kurdistan which took place yesterday.
It appears that the referendum on independence drew many voters to cast their votes as turnout reportedly achieved about 72%, according to the electoral commission. Even as votes are being still counted, a big victory for “YES” is broadly expected. The voting was condemned both at home and abroad though, hence even if a majority is in favor of independence, it will be almost impossible to make it constitutional. Notice that Iraq’s neighbors such as Turkey and Iran threatened to close borders and impose some sanctions on oil exports. Brent is going down 0.7% while WTI is falling 0.4% at the time of writing.
Despite many political plays it was North Korea that stole the show once again as its foreign minister said the US declared a war and his country had a right to shoot down any airplanes even outside of its zone. Let us recall that the US took its bombers close to the North Korean border as a response to the latest nuclear tests that were carried out by the Korean regime (this in turn was a response to the latest slate of UN sanctions).
While political risks have been broadly set aside, geopolitics has taken control over risk sentiment. As a result, the European indices ended the Monday’s session lower as North Korean foreign minister claimed that the weekend’s tweet of US President Donald Trump was a clear declaration of war. It was a response to the last week’s threat of the US President who suggested the Kim Jong-Un’s regime could have been totally destroyed.
The Monday’s appearance of Mario Draghi ahead of the European Parliament did not bring larger swings across the euro currency pairs. However, he spurred traders to buy Bitcoin as he said that the regulation of virtual currencies is out of the ECB’s power. Draghi ensured the ECB has no a mandate to prohibit digital currencies like Bitcoin, he highlighted three major risks though. The first was the size, the second the extent of its use and the third an impact on the economy.
Tuesday is bound to be dominated by FED speakers with Chair J. Yellen being a cherry on top. She is expected to speak about inflation, uncertainty and monetary policy – the hottest topics from financial markets point of view. Besides, two noteworthy macroeconomic releases from the US are on the agenda. Finally, the API will deliver its weekly update on oil stocks. Notice oil prices surged yesterday, hence they might be vulnerable to the data today.