Daily Market Update

Dollar Flat After Fed-Driven Gains Yesterday

October 18, 2018

The U.S. Dollar rallied throughout yesterday’s session but took the foot of the gas pedal overnight with EUR/USD flat.

Overview

The greenback gained much of yesterday but reached its best levels in the afternoon following the release of hawkish minutes from the last FOMC interest rate meeting. A number of policy makers seemed in favor of pushing rates slightly higher than the so-called “neutral rate” and into restrictive territory for some time. Odds for a December rate hike rose to 80%, up from 75% on Monday.

In a telegraphed move, the latest U.S. Treasury report did not label China as a currency manipulator, despite promises to do so and amidst an intensifying trade war. China’s yuan fell to its lowest level since January 2017.

The greenback is currently mixed against its biggest rivals and is not much on the docket that has a chance to move markets. The exception would be a speech by the Fed’s James Bullard later this morning which some expect to have a more dovish tone than yesterday’s FOMC meeting minutes.

AUD

The Australian dollar was the biggest winner overnight, gaining nearly half a percent against the greenback. The Australian unemployment rate unexpectedly dropped to a six-year low of 5.0%. The Reserve Bank of Australia considers 5.0% “full unemployment.”

GBP

As expected, yesterday’s summit failed to produce any real progress in the world’s most watched divorce. The new development is that Prime Minister Theresa May appears to be willing to agree to an extension to the post-exit transition period from 21 months by an extra 12 months. With little progress made this month, officials are looking to scheduling a December summit.

Sterling traders have all but ignored the release of weaker-than-expected retail sales and have focused on the Brexit headache.

 

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