Sterling seems to have started Wednesday's trading session on the up, having slumped below 1.2900 yesterday against the Dollar, marking its biggest single day loss since September 21, as global markets turned to a risk-off stance.
Also adding Sterlings weakness were further fears of the UK’s national lockdown and a prolonged delay in the Brexit talks. Further reports that the European states are pushing for a harder line on fisheries and knowingly delaying the negotiations to offer extra worries for Sterling buyers as the two week long Brexit discussions continue.
The overall US trade deficit widened to a 14-year high of $67.1bn from $63.4bn the previous month and slightly above consensus forecasts as import growth out-stripped imports. JOLTS data recorded an increase in job openings of 6.49mn for August from 6.60mn the previous month.
Federal Reserve (Fed) Chair Powell reiterated that all should be done to do what we can to manage downside risks to the outlook, there is still a long way to go in the recovery and the outlook remains highly uncertain. A weak recovery could also trigger normal recessionary dynamics. In this context, he noted that too little support would lead to a weak recovery while the risks of over-doing policy support seem smaller. The Fed chief reiterated that negative interest rates were not a tool that the bank was looking to use.
There was no further extension of risk appetite following Powell’s comments which limited scope for further dollar selling even though the comments remained dovish.
The dollar gained an element of defensive support late in US trading following the latest political developments with commodity currencies also moving lower.
The buying interest around the Euro seems to be back and lifting the currency to the key 1.18 level against the Dollar.
Building on optimism seen at the beginning of the week, the Euro has managed to revisit the 1.1800 neighbourhood for the first time since mid-September. The weaker tone surrounding the Dollar keeps dominating even with the positive news surrounding President Trump's health.
The Euro also met some support following positive data releases from the German industrial sector and mixed prints from the Construction PMIs in Euroland. In addition, ECB’s Lagarde reiterated the central bank does not target the exchange rate, adding that the recovery in the region is still surrounded by uncertainty and asymmetry.
As of writing, the Euro currently trades around the 1.1755 against its US counterpart.
Data to watch
13.10 EUR - President Laragde Speaks
19.00 USD - FOMC Meeting Minutes
Posted in Daily Market News on Oct 7 2020