Dollar Remains Weak on Dovish Fed; Sterling Falls on Brexit "Deadlock"

USD

The U.S. dollar remains in a defensive posture against most of its major counterparts after slipping yesterday afternoon. The greenback came under pressure as minutes from the last Federal Reserve meeting had a slightly dovish tone. While most members seem to see the scope to raise rates again in the near future, many expressed concern that low inflation may be more than a transitory issue. The dovish tone on future inflation calls into question more rate hikes in 2018 and weakened the dollar slightly. Indeed, the Bloomberg Dollar Spot index is headed for a fourth daily decline. Odds of a December rate hike have held right around 77%.

This morning’s economic docket reinforced the Fed’s worry about persistently low inflation. The Producer Price Index rose 0.4% in September, matching economists’ expectations. The core reading which excludes volatile food and energy costs also met market expectations. Friday’s consumer prices index is likely to continue to paint a consistent story.

The Fed’s Lael Brainard will be speaking on a monetary policy paper discussion presented by former Fed Chairman Ben Bernanke in Washington. European Central Bank President Mario Draghi will also be part of the panel discussion.

 

EUR

The Euro has held steady as the situation in Catalonia has seen some calm with the Spanish government seemingly taking control. The common currency also found some support following strong economic data. Eurozone industrial production rose 1.4% in August, more than doubling expectations.

European Central Bank President Mario Draghi will be speaking as a member of a panel on monetary policy in Washington today.

 

GBP

The British pound sunk overnight on rising concern over the progress of the Brexit negotiations. EU chief Brexit negotiator Michel Barnier said that the U.K. and the EU have reached a “state of deadlock” on the divorce deal. He continued to call the set back as “disturbing.” Renewed Brexit concerns come amidst a backdrop of heighted infighting within the Conservative party.