The pound had its first down day against the dollar for a while yesterday, while the dollar stabilised and the euro failed to regain parity.
After a wide rally at the start of the week, markets whacked hard into reverse gear as investor scepticism grew about the likelihood that central banks will become more dovish any time soon.
GBP/USD is up 0.21% this morning at 1.1349, having reached lows around 1.122 and 1.123 yesterday.
“Over the last 24 hours, solid US data releases have created a pushback against [the dovish] narrative, since they were seen as giving the Fed more space to keep hiking rates over the coming months,” said analysts at Deutsche Bank (ETR:DBKGn).
“And if markets had any further doubt about the Fed’s intentions, San Francisco Fed President Daly explicitly said yesterday that she didn’t expect there to be rate cuts next year, in direct contrast to futures that are still pricing in rate cuts from Q2.”
{{2126|The dodollar index counter-corrected back up to almost 112 yesterday before a stabilisation at 111.00 during the Asian session.
Although the euro butted its head against dollar parity yesterday it was unable to break through, before falling back on the greenback’s recovery to 0.9895.
EUR/USD is up 0.32% this morning at 0.9911.
There is a long list of more Fed speakers to keep an eye on today, with Charles Evans, Lisa Cook, Christopher Waller and Loretta Mester all contributing hot air to keep market speculation churning.
On the pound, Naeem Aslam at AvaTrade said: “The damage is already done to the British pound and yesterday’s Conservative Party Conference didn’t do much good [as] we saw the pound selling off on the back of the Prime Minister’s speech.”
He added: “The rally is certainly fizzling out and it more and more looks like that the recent surge in prices was nothing more than a dead cat bounce. The upcoming Construction PMI numbers which are scheduled to come in at 08:30 GMT will provide more colour about the health of the UK’s economy. If the number is strong, we may see a bit of rally but it is unlikely that the rally will last for long.
“Overall, traders are still digesting the message from Liz Truss from her speech yesterday.”