Risk-off Flows Driving Currencies

The recent collapse of trade talks between the US and China has sprung currency markets into risk off mode. Market participants have sold riskier currencies like the Australian Dollar and moved into the traditional safe-haven currencies like the Japanese Yen, Swiss Franc and the US Dollar.

The Pound

Sterling has also weakened over the past few trading days as investors have sold the pound on Brexit risks re-surfacing. Cross-party negotiations have not progressed which greatly reduces the probabilities of a successful meaningful vote ahead of European elections on May 23rd. The Prime Ministers position appears under significant pressure with the risk being that any replacement may very well be a hard Brexiteer, increasing the probability of a harder Brexit.

The other currency in focus is the South African Rand after South Africans returned to the election polls. The ruling ANC party are expected to hold a majority over the country, however reports are that they may have lost grounds in the important Gauteng Province. The currency is traditionally vulnerable to any political instability and this is a prime case of that. Accordingly, we feel that the Rand looks vulnerable in the days ahead.

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