Forex today: Sterling consolidates near 1-month lows, USD ticks lower on fading trade optimism; focus on Powell’s speech/FOMC minutes
The GBP/USD pair nursed overnight heavy losses to a one-month low, triggered by reports that Brexit talks between Britain and the European Union were close to breaking down and renewed fears of a no-deal Brexit. In a telephone call on Tuesday, German Chancellor Angela Merkel told British Prime Minister Boris Johnson to keep Northern Ireland in the EU customs union and that a deal was overwhelmingly unlikely. In the meantime, Johnson reiterated that they would leave the EU by October 31st, with or without a deal, which coupled with news of further resignations by a group of ministers kept the Sterling depressed through the Asian session on Wednesday.
Meanwhile, the US Dollar ticked lower on the back of a weaker tone surrounding the US Treasury bond yields amid fading optimism over a possible resolution of the prolonged US-China trade dispute. The US decision to impose visa restrictions on Chinese officials, together with the blacklisting of Chinese firms over the treatment of Muslim minorities, threatened to derail US-China trade talks. The development sparked a fresh wave of global risk aversion trade and was seen as one of the key factors driving flows towards traditional safe-haven assets, like the US government bonds and the Japanese Yen.
Meanwhile, the Fed Chair Jerome Powell’s comments on Tuesday suggested that interest rate cut in October was not a done deal, though did little to influence firming market expectations of a third interest rate cut this year at the upcoming FOMC meeting on October 29-30. At separate events, two other FOMC members – Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari signalled their support for more policy easing. In fact, the interest-rate futures are currently pricing in more than an 80% chance of rate cut in October and 40% chance of a fourth rate cut in December.
Main Topics in Asia
Brexit: Senior No10 aides preparing legal advice to ensure Boris can deliver Brexit on October 31 – The Sun
Ireland’s Varadkar: Difficult to get Brexit deal by deadline – BBC
British PM Johnson facing a new rebellion from his cabinet – The Times
Trade optimism waning – ING
Fed’s Evans: Wouldn’t mind another rate cut of 25 basis points
Fed’s Kashkari: Inverted yield curve is a concerning sign – RTRS
Key Focus Ahead
Meanwhile, other G10 currencies gained some positive traction against the Greenback, albeit remained well within the recent trading range as investors seemed reluctant to place any aggressive bids ahead of Wednesday’s important release of the minutes of the latest FOMC policy meeting held on September 17-18. Heading into the key event risk, the Fed Chair Jerome Powell’s yet another public appearance might further contribute toward producing some short-term trading opportunities. Apart from this, the incoming headlines from Eurogroup meeting might influence sentiment surrounding the European currencies, while any fresh trade-related development should continue to play a key role in driving the broader market risk sentiment.
EUR/USD bounces up from 200-hour MA ahead of Fed minutes
The bid tone around the American Dollar weakened, allowing a bounce in EUR/USD from the 200-hour MA support at 1.0947, possibly due to comments by Federal Reserve’s Chairman Powell that central bank’s balance sheet, which it had been shrinking until August, will soon expand again.
GBP/USD consolidates recent losses to 1-month low, just above 1.2200 handle
The GBP/USD pair now seems to have entered a bearish consolidation phase and was seen oscillating in a narrow band just above one-month lows set in the previous session. The recent bearish pressure surrounding the British Pound picked up the pace on Tuesday in reaction to reports that Brexit talks between Britain and the European Union were close to breaking down.
USD/JPY turns higher for the day, comfortable above 107.00 handle
The USD/JPY pair reversed an early Asian session dip to sub-107.00 levels and has now turned higher for the day, recovering a part of the overnight modest slide. Some signs of stability in equity markets undermined the Japanese Yen’s safe-haven demand and turned out to be one of the key factors that helped the pair to gain some traction.
Trade optimism waning – ING
According to Robert Carnell – Chief Economist Head of Research, Asia-Pacific at ING – the recent optimism in some form of US-China trade deal, even a limited one, seems to be dimming and in some ways, this isn’t surprising. The timing of the US travel bans and company blacklists associated with human rights issues have not helped to maintain a positive backdrop to these trade negotiations.