Majors stay quiet ahead of central banks Thursday

The U.S. Dollar continues trading within tight ranges as markets continue digesting the possibilities behind threat after threat on tariffs.

Overview

Naturally, equity markets are pointing downward as China has now asked the World Trade Organization for permission to retaliate against the U.S. We shall monitor if news of a new tax proposal and government shut-down talks influence markets. Thus far, the FX cycle is a boring one to follow since data has already highlighted U.S. economic strengths that merits the greenback hovering and sticking to its current favorable ranges.

With little in the way to make much of a dent, we expect the next few days to be quiet until we prepare ahead of European and British central bank meetings on Thursday. More U.S. data will be out Friday as well, but FX will now be mostly a game of statements since the economic realities look clear.

EUR

Italy is trying to give the Euro a bit of a breather as financial officials seem to be willing to work under EU guidelines. Statements from Italy’s leaders have set aside differences between their coalition and EU, postponing the proposals of a universal income or flat tax, previously a cause for concern. Additionally, the EU feels reassured that there will not be a push towards a Brexit style scenario.

While Italy is a long-term issue, Sweden’s move to the right over weekend elections is still making many observers scratch their heads as many fear this is a sign of true political and social decay when it comes to the welcoming of refugees and other immigrants.

GBP

The Pound rose slightly, but stayed in familiar ranges after good news on Brexit and wage growth numbers. Michel Barnier, star of the Brexit TV-novela for the EU, said that reaching a separation deal with the U.K. is actually doable in 6-8 weeks. Thus far, the U.K. remains fertile ground for criticism over Prime Minister Theresa May’s handling of all things, which dampens the chances of big-time sterling appreciation. However, it is clear that the Pound has improved recently because of Brexit becoming less hectic after the changes to the cabinet.

If Bank of England governor looks doubtful on Thursday’s announcement, the Pound could still experience losses as we predict a “dovish” interest-rate hike, in which they add to borrowing costs, but they only merit it to fighting inflation. U.K. wages grew on average by 2.6% in August beating a lower 2.4% estimate. At this point wages are growing faster than inflation, so if this becomes the point of focus along with the 43-year low unemployment during BOE’s Q&A, Pound could rise.