FX round-up: Sterling under pressure against backdrop of EM weakness
By Alexander Bueso
Date: Wednesday 09 May 2018
(Sharecast News) - Sterling came under renewed pressure at the start of the holiday-shortened week, on Tuesday, as the UK's foreign minister, Boris Johnson, took aim at Westminster's plans for a customs union with the European Union post-Brexit, labeling them "crazy".
His remarks sent cable to an intra-day low of 1.3547 and within just a whisker of its 200-day moving average.
Meanwhile, longer-term US treasury note yields were on the ascendant, as traders pushed crude oil futures higher ahead of the White House's announcement on the Iran nuclear deal, in the evening.
But so too were government yields in other developed economies on this side of the Pond, with that on the benchmark 10-year Gilt up by four basis points to 1.44% while that on similarly-dated Bunds were higher by three basis points to 0.56%.
Despite that, the US dollar spot index notched-up a near five month high at 9.29350.
It was against that backdrop that markets were keeping close tabs on renewed losses in the Emerging Markets space, with both the Argentina peso and Turkish lira trading on the back foot and setting fresh record lows by the close of trading.
Forced by recent events, despite three consecutive hikes in short-term interest rates and $5bn-worth of FX interventions in the space of under a week, on Tuesday evening Argentinian president Mauricio Macri asked the International Monetary Fund for access to a precautionary credit line, which was reportedly in the region of $30bn.
Indeed, despite those hikes the Argentine currency had surrendered roughly 12% over the preceding eight trading days.
Although resort to the IMF might help to backstop confidence in the South American economy and the strategy being pursued by its government, it also served to underline the seriousness of the situation facing Buenos Aires.
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