The Pound enjoyed a day of gains against its major peers on the back of speculation that suggested Britain is preparing for a Brexit agreement by the end of November. Following on from Tuesday’s rumour that the EU were prepared to make concessions on the Irish Border, investor optimism increased again on the hope a deal could be close. Reports surfaced that Theresa May’s cabinet ministers have been invited to read an almost complete draft of the Brexit withdrawal agreement.
As has been the case numerous times over the last few weeks, the market is leaning towards a deal being close but this is backed by very little actual evidence which has caused choppy conditions. This is illustrated by the fact that implied volatility on one-month pound options is at its highest levels since February. Traders are still searching for some actualities through the political posturing.
Wednesday saw the aftermath of the midterm election results, which saw the dollar edge lower as power was split in U.S. Congress. The Democrats gained enough seats to take the House of Representatives whilst the Republicans gained a majority in the Senate. The result was one that was expected by most commentators, and as a result, traders pulled out of the safe-haven currencies in search of riskier assets. Less of a Republican Congress should in theory see less trade tension, which points to a risk-on attitude.
The US Dollar has been a star performer this year, but the prospect of less fiscal stimulus has tapered some of the sentiment. Less fiscal stimulus should see less pressure on the Fed to keep raising interest rates and add downward pressure on U.S. Treasury yields and the dollar.
16:20 - EUR: ECB President Draghi Speech
20:00 - USD: Fed Monetary Policy Statement
20:00 - USD: Fed Interest Rate Decision; expected to remain unchanged at 2.25%