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  • GBP/USD slides 160 pips overnight on hard-Brexit concerns.  
  • US Dollar scores a fresh high on the 98 handle ahead of the Fed.  

Forex today was relatively subdued bar a massive washout of stops in GBP/USD that saw the pair endure one of its biggest one-day drops since the Brexit referendum.  Elsewhere, the Dollar was sitting on the porch of the 98 handle for the majority of the day, nudging up to a two-month high and printing a low of 97.90. As for US yields, the US 2-year treasury yield drifted sideways between 1.84% and 1.85%, while 10-year yields ranged between 2.05% and 2.07% as the market continued to price ina 30bp of easing at this week’s meeting.  

No-deal Brexit risks continue to grow. “Newly installed UK PM Boris Johnson said he would not commence talks with EU leaders until they first agreed to reopen the deal struck with predecessor PM May, and scrapped the backstop guarantee for the Irish border. Senior UK officials also said that ministers were “turbo-charging” no-deal preparations,” analysts at Westpac noted.  

Meanwhile, over in Europe, analysts at ANZ Bank noted that EU officials maintained that the deal they struck with Theresa May is not up for negotiation, and the Irish backstop provision won’t be removed. “An opinion poll in Ireland showed that only 43% of the population support Irish PM Varadkar’s position on Brexit and the Northern Ireland backstop.”

As for US data, the Dallas Fed manufacturing index soared back for the month of July to -6.3 from -12.1 although remains well down on the thirteen-year highs hit in mid-2018. Nevertheless, the Federal Reserve decision is likely to have considered the number of positive data releases since its last meeting, with jobs, CPI and GDP all lined up for a positive input for the second half of the year and the risk here is on the consumer. Inflation could run sky-high if the Fed acts too aggressive so soon, so a hawkish cut could be on the cards which mean more upside for the Dollar.  

Currency action

As for individual currency performance overnight, analysts at Westpac summarised as follows:  

  • The US dollar index is up 0.1% on the day, nudging up to a two-month high.  
  • EUR rose from 1.1115 to 1.1149.  
  • Underperformer GBP fell from 1.2365 to 1.2212 – a two-year low – as new UK PM Johnson stepped up preparations for leaving the EU without an agreement.  
  • USD/JPY rose from 108.60 to 108.90. AUD slipped further, from 0.6910 to 0.6895 – a one-month low.  
  • NZD similarly made a fresh multi-week low at 0.6616.  
  • AUD/NZD ranged between 1.0405 and 1.0435.

Key notes from Wall Street:

  • Wall Street ends mixed on a big week ahead

Key events ahead:

The Bank of Japan policy meeting is widely expected to be on hold.