With little data released yesterday, the focus once again remains on the ongoing Brexit negotiations -the 5th round finishes today. Philip Hammond released a statement yesterday that the government is preparing for every possibility, which suggests there is a greater chance of a ‘Hard Brexit’ where the UK walks away from the negotiating table without a deal. In light of such a potentially economically damaging outcome it has cast further doubt over the likelihood of any rate hike coming from the BoE.
During the London session, GBPUSD remained range bound, opening close to the low of the day at 1.3190, the high of the day set in the afternoon was just 21 pips higher at 1.3211. Dovish minutes from the Fed later in the evening caused some broad dollar weakness and GBPUSD has continued climb since to touch 1.3261 early this morning.
GBPEUR opened at 1.1162 and for the majority of the day tracked lower, touching a low of 1.1133 just before the session ended. A last minute surge in GBP buying caused a slight reversal to 1.1154.
The euro climbed to a two-week high against the weakened dollar as Catalonian unrest stopped shy of formally declaring independence. The Spanish Foreign Minister, Alfonso Dastis, stated there was room for negotiations within the existing constitution framework, confirming that the regional leader’s symbolic declaration of independence was falsely suggestive.
The euro was also supported by strong economic data out of Germany on Tuesday but any further gains may be limited given the extent at which it has already appreciated.
The US dollar remains under pressure as President Trump continues to feud with fellow Republican Senator Bob Corker and the major tax-code overhaul could be harmed as a result.
All eyes were on the FOMC meeting minutes released yesterday evening. Despite rumours circulating around that the Fed will raise rates in December, some members believe no further increases in the federal funds rate are called for this year. Inflation worries were highlighted, with employment at high levels and inflation still remaining stubbornly low, the hopes of strong employment feeding into increased inflation is looking like a flawed plan.
Overall it appears the majority are for a continuation of rate hikes as long as data remains strong for the USD. Today brings PPI, Unemployment claims and speeches from various FOMC members
EURUSD opened at 1.1811 and rose to a high of 1.1853 mid-afternoon and remained flat thereafter ahead of the FOMC minutes. On release, the dovish tone set the pair higher reaching 1.1862 in the evening and then 1.1878 overnight.