Concerns on the inflation path and questions on the future of tax plans continued to weigh on the dollar on Friday, while the pound drifted higher on reports that the UK may get a 2-year transitional period before it exits the EU.
Although yesterday’s encouraging data on US producer prices and initial jobless claims helped the dollar to gain some ground against its major counterparts, markets remained cautious on the timing of another interest rate hike in 2017 after the Fed’s September meeting minutes released on late Wednesday raised concerns on whether factors weighing on price growth are more persistent after all.
Optimism on Trump’s proposed tax overhaul was somewhat fading as Trump showed some opposition to certain aspects of the tax plan this week after he was informed that the plan would hurt middle-class families according to sources familiar with the matter. Also noteworthy is that on Tuesday Republican Senator Todd Young said he would not support any tax overhaul plan that would “blow a hole in the budget”.
Later in the day, markets will keep a close eye on the US CPI readings to get more insights on the inflation path.
The dollar index broke below the 93-key level it reached yesterday to trade at 92.79 during the Asian session. The yen saw some moderate gains on the news of a small earthquake near the area where North Korea conducted nuclear tests in the past. South Korea’s weather agency said though that this was a natural phenomenon. Dollar/yen was 0.25% down at 111.99.
Gold made a fresh two-week high at $1,298.94 per ounce, gaining 0.30%.
A report by the German newspaper Handelsblatt on Wednesday, stating that the EU’s Brexit negotiator Michel Barnier might offer the UK a two-year transitional period during a meeting of EU ambassadors today, boosted the pound to a 1 ½-week high of $1.3311. The offer, however, would be under the condition that the UK will meet its EU financial obligations and will give up its voting rights. This came a few hours after Barnier said that the Brexit divorce bill was in a “deadlock”, driving the pound to a three-day low of $1.3143.
The euro edged down by 0.08% to 1.1821 following a report overnight that the ECB policymakers agreed to extend the 2.3 trillion asset purchases program into next year (a bit conflicting). Particularly sources with knowledge of the matter said that the ECB is considering reducing asset purchases from the current 60 billion euros to 30 billion euros in January and maintain the program for at least nine months. ECB policymakers are expected to meet on October 26 to decide on whether they will tighten monetary policy before the quantitative program expires in December.
In other currencies, the aussie gained 0.22%, rising to an eight-day high of $0.7843 despite lower than expected trade data out of China. Still, export figures remained strong. The kiwi was up by 0.21% at $0.7142, with New Zealand’s kingmaker First party holding a board meeting on Monday.
Regarding energy markets, a larger than expected reduction in US oil inventories as per the EIA report pushed oil prices higher. US crude oil inventories declined by 2.747 million barrels, while analysts expected a fall of 1.1991 million barrels. WTI crude jumped by 1.32% to $51.27 per barrel and Brent increased by 1.28% to $56.97.