FX round-up: Pound buoyed by remarks from Treasury´s Hammond

Sterling moved higher, tracking the ebb and flow of reports regarding the likelihood of a 'hard' Brexit or not.

Versus the US dollar, the pound finished at 1.2701, up from 1.2567 in the previous session, as the Chancellor told the Treasury Select Committee that a transition period following Brexit would be in the interest of both the UK and the European Union.

Philip Hammond said that businesses, regulators and thoughtful politicians were increasingly in favour of a transition period.

Jane Foley, senior FX strategist at Rabobank, explained to clients that "GBP has adopted a fairly binary set of reactions to UK political news dependent on whether it is deemed to support a ‘hard’ or ‘soft’ Brexit. The market appears to be evaluating the risk of a hard Brexit as noticeably lower than in October."

Acting as a backdrop, traders were anxiously waiting on upcoming policy decisions by the Bank of England and the US Federal Reserve and mulling whether either would drop any hint of a regime change following the election victory by Donald Trump.

Dollar/yen meanwhile continued to rise, apparently intent on attacking its 2015 highs towards the 120.0 area.

The currency cross edged higher, rising from 115.02 on 9 December to 115.29, and hitting an intraday high of 116.13 at one point in Monday´s session, as US 10-year Treasury note yields hit their highest level since September 2015, at 2.53%.

On a related note, Foley pointed out how net yen shorts soared over the week ending on 6 December, according to the latest US CFTC data.

"The recovery in the USD is the primary factor behind this move", Foley said.

Weakness in the yen came despite the release of data revealing a 4.1% month-on-month rise in 'core' Japanese machinery orders for October.

In parallel, figures from the Bank of Japan showed that yen weakness was feeding into lessened domestic price declines.

The country´s corporate goods price index retreated at a 2.2% year-on-year clip in November (consensus: -2.3%), for a 20th consecutive monthly drop.

Acting as a backdrop, investors took note of yuan weakness coinciding with remarks from US President-elect Donald Trump over the weekend regarding his thinking on the Asian giant´s so-called 'One China' policy.