The Dollar, which had shown little sign of life in the wake of the Federal Reserve’s policy meeting on 26th September, has sprung into action in the past two trading sessions thanks to outright bullish comments from Chairperson Powell and strong US macro data. In trade-weighted terms it is now up 0.7% since 26th September to a three-week high and only 0.5% away from the multi-year high hit in early September. The catalyst for this mini Dollar revival was the release of stronger-than-expected private sector employment and non-manufacturing PMI data for September. Importantly this set of strong numbers gave further credibility to the idea that US GDP growth remained very strong in Q3 and to Powell’s punchy assessment and forecasts for the US economy and the need for further (albeit still gradual) rate hikes.
As a result, the Euro and in particular the Aussie and Kiwi Dollars and most high-yielding emerging currencies lost ground versus a resurgent Dollar but Sterling has fared better, with the GBP/USD cross down only 0.2% in the past 48 hours. Prime Minister May arguably put in a decent performance yesterday at her Conservative Party’s annual conference while the EU has reportedly welcomed the British government’s stated willingness to compromise in order for both sides to reach an EU deal acceptable to all parties. Ultimately, however, the Sterling trade-weighted index is still in the middle of a narrow 10-day range, with markets seemingly not willing to take a strong view as to where the Brexit train will be in six months time, let alone how it will get there.
