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TALKING POINTS – BRITISH POUND, BREXIT, US DOLLAR

  • British Pound gains on reports of post-Brexit customs compromise
  • US Dollar broadly lower as markets retrace Tuesday’s price trends
  • Lull in top-tier event risk might increase sensitivity to headline risk

The British Pound pushed higher in Asia Pacific trade amid reports of a proposal to bridge differences between members of Prime Minister Theresa May’s cabinet over the post-Brexit customs regime. It would allow the country to temporarily stay in the EU common tariff until a new deal is struck.

Such an arrangement would avoiding a disruption of commercial activity and a hard border in Northern Ireland while technically allowing Brexiteers to claim that the customs union has been left as promised. EU officials may yet spurn the compromise however.

The US Dollar traded broadly lower, continuing a decline started midday yesterday. The benchmark currency retreated after setting a new four-month high, with the downswing curiously coinciding with rising Treasury bond yields and a steepening 2019 rate hike cycle implied in Fed Funds futures.

A concurrent rise in the bellwether S&P 500 stock index may help explain these seemingly counterintuitive trading patterns. Markets began 2018 betting against USD on expectations that a broadening recovery will see global central banks play catch-up to the Fed’s hawkish lead, eroding the greenback’s yield advantage.

An upturn in sentiment may have revived such fanciful predictions, perhaps with the aid of profit-taking on Tuesday’s moves now that the week’s offering of big-ticket US scheduled event risk is exhausted. Follow-through seems unlikely however amid loud protest from the world’s leading central bankers.

Looking ahead, a lull in heavy-duty event risk leaves markets without an obvious focal point for speculation. That might make for quiet consolidation, but caution is warranted. Traders hungry for a catalyst may pounce on stray headline flow more readily however, making for knee-jerk volatility.

See our free guide to learn how to use economic news in your trading strategy!

ASIA PACIFIC TRADING SESSION

British Pound Gains on Hopes for Post-Brexit Customs Compromise

EUROPEAN TRADING SESSION

British Pound Gains on Hopes for Post-Brexit Customs Compromise

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter