US FX WRAP: Dollar mixed vs G10s with GBP flat despite concerns on PM's future
The Dollar Index was mixed against G10 peers to start the week, as Middle East rhetoric largely dominated trade dynamics. Over the weekend, Trump labelled Iran's peace plan as totally unacceptable, and the major update on Monday, via Axios citing US officials, is that Trump is meeting with his national security team today to discuss the way forward in the Iran war, including possibly resuming military action, after negotiations with the country deadlocked on Sunday. The sources did add, Trump is expected to leave for China on Wednesday and return Friday, and they don't think he would order military action against Iran before he returns from China. On US-China relations, the President once again reiterated today they [Trump/Xi] have a great relationship, and they will discuss Iran. There was no Fed speak or tier 1 data, as participants await CPI and PPI on Tuesday and Wednesday, respectively.
As alluded to above, G10s moved at the whim of energy, with the gains in the crude complex supporting the Loonie. Haven FX, JPY and CHF, were the G10 laggards and saw losses vs. the Buck, given their net-importer of energy statuses.
Currency-specific newsflow was fairly sparse to begin the week, although the Pound had plenty of political turmoil to digest. Overall, the GBP was flat, and traded between 1.3547-1.3653. In the UK morning, Cable edged lower as markets reacted to a lackluster PM Starmer address. In brief, Starmer’s speech left Labour MPs unsatisfied, which led to Labour backbencher West to form a letter to gather support for a scheduled exit for the PM, and has since gained more support. The main point of concern for this latest move is whether Burnham will be an MP before the leadership challenge is called. As it stands, nearly 70 MPs are calling on Starmer to resign while The Times has reported that MPs pivotal in selecting Labour’s next leader will tomorrow call on ministers to ditch the existing fiscal rules and increase taxes on wealth as part of a radical overhaul of the party’s economic strategy.
Elsewhere, modest downside was seen in EUR/NOK following the Norwegian inflation metrics, as core inflation rose, despite the headline Y/Y coming in slightly cooler than the prior. For EMs, South African President Ramaphosa remarked he is not stepping down.
The Dollar Index showed mixed performance against G10 currencies amidst heightened geopolitical tensions, particularly regarding Iran, which clouds the outlook for risk sentiment. While the GBP remained flat amid political instability and leadership challenges within the Labour Party, energy dynamics favored currencies like the CAD due to rising crude prices. Traders are also awaiting upcoming CPI and PPI data that could influence the dollar's path this week.