What’s been happening?

Pound Sterling – UK Markets 

The pound rose to its highest level against the dollar in nearly two weeks testing above 1.29 on Tuesday. However, the fact that it was virtually unchanged vs. the euro suggests that this move was caused by the dollar weakness rather than a stronger sterling.

Ahead of the meeting between the EU's chief negotiator Michel Barnier and his British counterpart Dominic Raab, British Trade Minister Liam Fox said that chances of a no-deal Brexit were not negligible and a no-deal Brexit outcome would be a big “geo-strategic mistake” for Europe. “If the EU decides that it wants to put the ideological purity of the bureaucracy of Brussels ahead of the well-being of the people of Europe, it will send a very big signal to the rest of the world about exactly where Europe is heading,” Fox told Sky News in an interview.

In a joint press conference at the end of the first day of Brexit talks, Barnier stated that it was unlikely to have a deal before November and added that Brussels wouldn’t accept any responsibility if they failed to reach an agreement. On the other hand, Raab reiterated that the UK would be prepared for all eventualities and they needed to step up the pace of negotiations in order to finalize the deal by November.   

US Dollar – US Markets

The dollar extended its losses against its peers on Tuesday amid a lack of fundamental drivers and the US Dollar Index, which tracks the buck against a basket of six major currencies, fell to its lowest level since August 9. The S&P 500’s record-breaking rally seems to have caused a flow of capital into stocks from the dollar.   

Meanwhile, Robert Kaplan, the president of the Federal Reserve Bank of Dallas, published an essay in which he voiced his support for further gradual rate hikes. “The Federal Reserve is meeting its full employment and price stability objectives. As such, we should be removing accommodation in a gradual manner in order to get to a neutral policy stance,” Kaplan said and added: “With the current fed funds rate at 1.75 to 2 percent, it would take approximately three or four more federal funds rate increases of a quarter of a percent to get into the range of this estimated neutral level.”       

Euro – European Markets

The euro continued to rise vs. the dollar on Tuesday as concerns over the economic crisis in Turkey having a negative effect on the eurozone eased after DBRS, a global credit rating agency (CRA), reported that impact on European banks with exposure to Turkey would be manageable. “DBRS considers the overall impact to be manageable given the banks’ diversified business models and strategies in place for their emerging markets exposures,” the publication read. 

Meanwhile, responding to US President Trump’s claims about Europe manipulating its currency, Jurgen Hardt, a key ally of Chancellor Angela Merkel, told Bloomberg that neither Germany or Europe had any intentions to manipulate the euro and it was in the United States’ own hands to stabilize the dollar. Also on Tuesday, citing sources familiar with the matter, Reuters reported that European Union leaders were planning to hold an emergency summit in November to consider any Brexit agreement struck with the UK.

What’s coming up? 

UK: With a quiet economic docket in the UK on Wednesday, investors will be looking for fresh developments on Brexit negotiations.

US: The National Association of Realtors will release the existing home sales data on Wednesday. Later in the American trading hours, the FOMC will publish the minutes of its August meeting. 

EU: There won’t be any macroeconomic data releases from the euro area on Wednesday.