The Euro continued to recover ground against the US Dollar yesterday, rallying by around half a percent on Tuesday back towards the 1.16 mark.
With fears over Turkey taking a back seat for now, investors have unwound many of their recent safe-haven flows and poured back into those currencies deemed riskier, the Euro and indeed Sterling being two of those. This unwinding of safe-haven flows were helped on their way by increased optimism that a deal between the US and China could be struck over trade. The two countries are to begin talks in Washington on Wednesday, albeit progress towards an agreement at this stage is likely to be both limited and gradual.
As we mentioned yesterday, activity in the Eurozone doesn’t really get going until tomorrow morning’s PMIs are released, which are expected to show a modest uptick in August from a month previous.
FOMC to talk up US economy in latest meeting minutes
The main focal point of currency trading today will be this evening’s FOMC meeting minutes from the US central bank’s August meeting. We expect another hawkish signal that talks up the improvement in the US economy, while leaving the door firmly open to two more interest rate hikes this year. Investors will also have one eye on the Jackson Hole symposium on Thursday, with Chair Powell to speak alongside a number of other central bank heads. We will be looking out for any signal that may suggest the Fed will be in any way influenced by comments earlier in the week from President Trump. The President once again criticised the FOMC for raising interest rates.
With no real economic data releases of note in the US yesterday, the greenback was driven largely by the aforementioned unwinding of safe-haven flows. The US Dollar index is now subsequently trading back around its weakest position in a little over ten days.
UK report largest budget surplus since 2000
An increased appetite for risk and some encouraging borrowing figures allowed the Pound to trade above the 1.29 mark versus the US Dollar throughout much of trading on Tuesday. Official statistics revealed that the UK was able to post its largely budget surplus since the year 2000 in July, which could provide Chancellor Hammond with more room to ramp up spending during his autumn budget. Public sector net borrowing went into surplus by almost £2.9bn, reflecting that the government received more money in taxes than it spent on public expenditures.
With no macroeconomic releases in the UK today, the Pound is likely to be driven largely by events elsewhere, namely the release of the Federal Reserve’s meeting minutes.