US$ Holds Most of Gains Ahead of Fed; Sterling Rallies

USD

After rallying yesterday against the majority of its rivals, the greenback was able to hold most of its gains.  The British pound was the exception to general greenback strength as it rallied over 1.0%.  The U.S. dollar has found support over the past week as Fed Fund Futures show that there is a growing consensus the Federal Reserve will raise interest rates later this year.  Current odds sit at 68%, up from 59% this time last week.

There is no top tier data slated for release this morning, so the sole focus of market participants will be zeroed in on this afternoon’s release of the latest FOMC meeting minutes.  Federal Reserve Vice Chairman Stanely Fischer said earlier this week that September’s decision to postpone an interest rate hike was a “close call,” so expect to see some disagreement.  The FOMC see voted 7-3 to hold rates last month. As always, traders will parse the member’s words in an attempt to sharpen their own interest rate expectations.  Improving labor markets and an uptick in inflation may help solidify chances of a December rate hike.

EUR

The Euro continued its mild sell-off overnight, falling an additional 0.4% against its American counterpart.  The Euro is over 1.5% weaker since last Wednesday’s close.  The common currency failed to find support even as the economic docket surprised to the upside.  Eurozone industrial production slightly beat expectations and expanded at 1.6% in August. A separate report showed that Germany wholesale prices also grew, but the data failed to lift the Euro.  As with most currency crosses, attention will now shift to this afternoon’s FED minutes release.

GBP

After falling drastically over the course of four trading days, the British pound finally found some reprieve overnight.  The sterling rallied as much as 2.0% against the U.S. dollar before opening today’s session 1.0% stronger.  U.K. Prime Minister Theresa May accepted that Parliament should be allowed to vote on her plan for taking Britain out of the European Union.  Lawmakers will begin debate today on a motion calling for Parliament to be able to “properly scrutinize that (exit) plan.”

To be clear, members of Parliament will not be able to vote to keep the United Kingdom inside the European Union. But it will give “Stay” members some ability to apply pressure on the new Prime Minister in hopes of keeping close trading ties with the European Union.

Despite the overnight rally, the sterling is still 4.0% weaker against its American counterpart from last Thursday afternoon.