Yesterday, the US dollar hovered near two-week lows against the pound following the release of the Federal Open Market Committee (FOMC) minutes. The central bank meeting minutes reinforced the Fed’s recent dovish policy tilt, and reiterated the stance that interest rates were being kept on hold for the rest of the year. Commenting on the Fed’s policy outlook, Chief Strategist at Sumitomo Mitsui Bank, Daisuke Uno said: “Some people say the minutes contained few surprises but a close look suggests the Fed is likely to become more dovish as time goes by.”
However, they did reveal that officials are leaving the door open for further rate hikes if the economy improves.
“Several participants noted that their views of the appropriate range for the federal funds rate could shift in either direction.”
Meanwhile, the beleaguered pound showed little reaction following the news that the European Union had granted Theresa May a Brexit delay of up to six months.
EU leaders granted the UK a six-month delay to Brexit following five hours of talks.
The new deadline of 31 October, with a ‘progress review’ in June, likely prevents a chaotic departure from the EU tomorrow.
European Council President Donald Tusk warned the UK not to engage in any more time-wasting.
He said: “Let me finish with a message to our British friends: This extension is as flexible as I expected, and a little bit shorter than I expected, but it’s still enough to find the best possible solution. Please do not waste this time.”
Mr Tusk also noted that the UK could rethink its strategy or choose to “cancel Brexit altogether”.
Commenting on the extension of Article 50, Head of Forex at State Street Bank, Kazushige Kaida said: “At least there won’t be a no-deal Brexit this month.
“But while I’m no expert on British politics it seems difficult for the parliament to come to any agreement.
“They just kicked the can down the road. Once the dust settles, I would expect to see selling in Sterling.”
Looking ahead to this afternoon, the US dollar could slip against the pound following the release of the latest US Producer Price Index (PPI) figures.
If PPI excluding volatile components such as food and energy falls compared to the previous rise of 2.5 per cent, sentiment in the dollar could sour.
Also scheduled for Thursday afternoon is a speech from the Federal Reserve’s Vice Chair Richard Clarida.
If Mr Clarida reinforces the dovish tone of the Federal Reserve, highlighting risks such as a slowing global economy and tensions between the US and China, the US dollar may slide against the pound.