Bullish investors warmly welcomed the hawkish bias with the Dollar Index lurching towards 98.00 as optimism rose towards the central bank breaking its tradition of caution this year. With U.S. domestic data repeatedly displaying signs of stability and inflation slowing treading towards the golden 2% target, there seems to be a justifiable and compelling reason for the Fed to pull the trigger in the coming months.
A key talking point from September’s Fed minutes was the growing divergence within the committee, as several officials warned about the potential costs of keeping rates unchanged for prolonged periods. Although the overall market reaction was somewhat muted, the minutes have displayed the Federal Reserve’s intentions to raise U.S. rates this year, consequently providing the markets a cushion for the shock beforehand.
Sterling on a chaotic ride
Sterling was flung onto a chaotic rollercoaster ride this week with prices violently swinging between losses and gains as the explosive combination of hard Brexit jitters, political uncertainty, and a resurgent dollar left investors on edge. Surprisingly the Brexit-gripped pound was the best performing currency on Wednesday following UK’s Prime Minister Theresa May’s agreement to hold a Parliamentary debate on the strategy for the Brexit negotiations. It is becoming increasingly clear that the Brexit anxieties have left the Sterling extremely sensitive and this was displayed on Wednesday when the British pound/U.S. dollar (GBP/USD) currency pair spiked up more than 200 pips. Regardless of these short-term gains, the pound remains heavily depressed with steeper losses expected as the Brexit jitters haunt investor attraction towards the currency.
Sterling/dollar remains fundamentally bearish with prices potentially trading closer to the parity dream as the toxic mixture of hard Brexit fears and renewed Fed hike hopes entices sellers to attack incessantly. From a technical standpoint, the breakdown below 1.2200 could trigger a further selloff towards 1.2000.
WTI under pressure again
WTI Oil stumbled towards $49.50 per barel on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) reported its oil production hitting an eight-year high in September consequently rekindling concerns over the excessive oversupply. The downwards move was complimented with uncertainty over Russia’s willingness to trim production following comments from Rosneft boss Igor Sechin over how his company will not cap oil production as part of the potential OPEC freeze deal. OPEC and Russia have talked a big game on the potential freeze deal and could pay heavy prices if investors are left disappointed once again.
Although the recent surges in oil have been impressive, sentiment towards the commodity remains bearish with further declines expected as the oversupply fears haunt investor attraction. Attention may be directed towards Thursday’s crude oil inventories report which could send oil lower if there is a build-up in inventories.
By Lukman Otunuga