Tuesday saw yet another day of dollar weakness, with nearly all G10 currencies gaining ground on the greenback. The USD came under considerable pressure yesterday as not only did the dollar index hit fresh 2-year lows, yields continued to diminish, and data releases were weak.
GBPUSD started the session Tuesday trading strong at 1.3164. In the early afternoon we saw the pair tease the 1.32 mark, before sharply advancing beyond 1.3260; before finally ending the session at 1.3227. After reaching 8-month highs yesterday, if this dollar weakness continues, we could see cable climb beyond 1.33 this week. Yet, it is also important to note that this recent form is mainly due to dollar weakness, thus if we see any resilience from the dollar, all the recent gains cable has made would likely diminish.
GBPEUR on the other hand, had a relatively flat day of trading, as the market awaits any news from the Brexit negotiations. Opening the day at 1.1068, the pair maintained its position, closing off just above at 1.1089.
Similarly to cable, EURUSD also took advantage of the apparent dollar weakness. After starting the day just below 1.19 at 1.1894, during the session the pair was able to make stable gains, closing the day off firmly at 1.1927.
There may, however, be light at the end of the tunnel for the dollar. Much of the recent dollar weakness has stemmed from the uncertainly, and lack of consensus between the Senate on the latest US fiscal stimulus. But markets have become more hopeful, with a senior US official commenting yesterday that there is a “real desire” by both sides of the house to reach an agreement on a smaller stimulus deal of around $500B. If agreed, this will almost certainly allow the dollar to gain some upside.
On the data front, the main event today will be the FOMC minutes for July, released later this evening. At 07:00 this morning we had the UK Inflation data release, coming in better than expected, with Core Inflation at 1.8% (forecasted at 1.3%) and Inflation Rate at 1% (forecasted at 0.6%). Later today we also have Core Inflation from the Eurozone at 10:00.