Markets: Dollar picks up on renewed tax cut hopes; Kiwi and sterling stung

What you need to know:

• Dollar and Treasury yields gain as US Senate passes budget blueprint
• European stocks open higher on a weaker euro
• Oil prices see moderate gains
• Hong Kong stocks recover ground after turbulence on Thursday

The US dollar strengthened on Friday as the Senate passed a budget blueprint that will help push forward the Republican party’s planned $1.5tn tax-cut package.

The Senate voted 51-49 late on Thursday to pass the bill, in a move that stands to protect the planned cuts from a filibuster by Democrats.

The dollar index, which measures the greenback against a basket of major currencies, rose 0.3 per cent to 93.53. The yen weakened 0.7 per cent to ¥113.3 against the dollar, which is now closing in on its strongest level against the Japanese currency this month.

The moves came as markets continue to await Trump’s decision on the next chair of the Federal Reserve, which he is expected to make before he travels to Asia on November 3. Yields on 10-year US Treasuries added 4 basis points to 2.36 per cent — the highest level this week.

In early European trading and ahead of an EU meeting on Brexit, focus shifted to the weakness in the pound, which dropped 0.2 per cent in the face of the dollar’s strength.
“1.30 is a huge level for the pound and a fall below that level would rehighlight fears over uncertainty levels towards the UK economy,” said Chris Bailey, European strategist at Raymond James. “The law of round numbers matters for FX markets.”

The British currency has gained over recent months on expectations of a November rate hike, but that narrative was weakened late on Thursday when the Bank of England’s Deputy Governor Jon Cunliffe said it was not clear that interest rates need to rise soon.

Equities
European stocks opened higher on Friday, with the stoxx 600 adding 0.2 per cent and Germany’s Dax index rising 0.4 per cent.

The rises came as Asian equities were broadly firmer on Friday after a turbulent day on Thursday. Hong Kong’s Hang Seng index was up 1.2 per cent after closing 1.9 per cent lower in the previous session, on the back of comments from China’s central bank chief that the country’s fast-growing economy faced a possible “Minsky moment”.

Currencies and fixed income
The New Zealand dollar continued to weaken on Friday after Labour leader Jacinda Ardern forged a deal to form a coalition government with the nationalist New Zealand First party on Thursday. In early trading it was down 0.6 per cent against the greenback to $0.6985, after having in the Asian session hit its lowest level in five months.

In Europe, the German 10-year Bund yield added 4 basis points to 0.43 per cent. 10-year gilt yields rose 2 basis points to 1.3 per cent.

Commodities
International benchmark Brent crude rose 0.4 per cent to $57.44 a barrel, steadying from a fall on Thursday. US marker West Texas Intermediate rose 0.3 per cent to $51.42 a barrel after also weakening in the previous session.