07/10/2020

Sterling experiences mixed day on Tuesday


GBP

Sterling experienced a mixed day on Tuesday as the pound edged higher during early trading hours as optimism was building around progress in talks between the UK and EU. The pound was also helped by expectations that an interest rate cut will be pushed back by the Bank of England. Money markets pushed back bets that Britain’s interest rates would turn negative, but they believe rates falling below zero is more likely to happen in May 2021 as opposed to March.

Furthermore, European diplomats told reporters that Brussels was gearing up to negotiate until as late as mid-November rather than cutting talks off at the start of next month. This will avoid a damaging “no-deal” scenario for Britain when they leave the bloc on 31st December.

The pound did fall later in the day as ground still needs to be made between the UK and the EU. The EU is hardening its position on the matter of fisheries which would suggest these talks are unlikely to be concluded soon and tensions will remain elevated. Reports are suggesting that the EU wants full control over UK’s coastal waters following Brexit. The pound is likely to remain highly volatile in the coming weeks.


USD

The dollar held its gains on Tuesday against most major currencies as US President Donald Trump cancelled talks on economic stimulus which led to demand increasing for safe-haven assets. The dollar has remained stable since the news of Trump leaving hospital but his decision to hold off on stimulus talks increases downside risk for the US economy.

Federal Reserve Chair Jerome Powell spoke on Tuesday and warned that the US economy could slip into a downward spiral if the coronavirus is not effectively controlled, and called for more economic assistance. Investors will now turn their attention to minutes from the Fed’s most recent meeting and see how the central bank view the economic outlook.


Key announcements

  • 7:00 – USD – FOMC Meeting Minutes

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