What’s been happening?

Pound Sterling – UK Markets 

The British pound recovered a small part of the losses it suffered against the euro on Tuesday and stayed flat vs the dollar. The lack of macroeconomic data releases from the UK allowed investors to remain focused on the political headlines.

Citing a senior UK government source familiar with the matter, Reuters reported that only a new Brexit deal would win the approval of parliament. Commenting on the same issue, Michael Gove, Conservative politician and the Cabinet Office Minister in charge of overseeing no-deal Brexit planning, said that they were deeply saddened that the EU does not want open the Withdrawal Agreement to negotiation. "We can negotiate a new deal," Dove stated. "We remain ready and willing to negotiate." Later in the day, summarising his meeting with the UK counterpart Sajid Javid, Ireland's Finance Minister Paschal Donohoe told reporters that he had a very productive meeting and said that Javid reiterated Prime Minister Boris Johnson's position on the Withdrawal Agreement. "My view is that no-deal is not the UK government's desired outcome, but something they willing to contemplate," Donohoe noted.

US Dollar – US Markets

The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, staged a modest recovery after China took steps to limit yuan’s depreciation and eased concerns over a currency war with the US. 

Meanwhile, the Investor’s Business Daily’s (IBD) Economic Optimism Index in August edge lower to 55.1 from 56.6 in July but surpassed the market expectation of 54.6. Commenting on the data, “readings over the neutral 50 level reflect optimism about the U.S. economy, but expect a sharper pullback in September,” said IBD’s Jed Graham. “That's because President Donald Trump didn't reignite the China trade war until Aug. 1, the eighth and final day of polling. The Dow Jones, which held near a record above 27,000 through July 30, closed on Monday at 25,717.”

Later in the day, during his presentation on the US economy and monetary policy before a National Economists Club luncheon, St. Louis Federal Reserve Bank President James Bullard argued that further rate action may be desirable but said the economy was still adjusting to the Fed's shift as of early this year from raising rates to lowering them. “We will have to see how data rolls in before deciding whether appropriate to reduce rates at the Fed's September meeting," Bullard added.

Euro – European Markets

The shared currency rose to its highest level in more than two weeks vs the dollar but struggled to preserve its momentum and closed the day in the negative territory. Against the pound sterling, the erased a small portion of Monday’s gains. 

In an interview with Profil magazine on Tuesday, the European Central Bank’s outgoing member, Ewald Nowotny, said that he was doubtful if additional monetary stimulus could deliver a significant boost the economy.

What’s coming up? 

UK: The only data release from the UK on Wednesday will be Halifax House prices.

US: The Federal Reserve will publish its Consumer Credit Change data. 

EU: Industrial production data from Germany and France’s trade balance figures will be featured in the European economic docket on Wednesday.