The overnight session has seen further creeping strength of the dollar, building on the gains seen during Tuesday. The dollar index has touched levels last seen mid-September last year and so far this week, we have also seen EURUSD make fresh lows for the year. Sterling is now heading for its seventh consecutive week of losses vs. the dollar. Such a run of weekly losses has not been seen since August 2008 in the midst of the global financial crisis when the dollar was rising against pretty much everything. Back then, cable fell 12%, this time it is down just over 3%. Of course, back then was very different times, but the difference does illustrate the lower volatility environment we are currently in. For today, sterling is going to be keenly watching the minutes to the August MPC meeting. After the Inflation Report, few surprises are likely, but there remains the low probability but high impact scenario of at least one member voting for higher rates, which would certainly cause sterling to reverse at least some of the recent losses as short positions are covered. Elsewhere, the Fed minutes are also released this evening and will watched for signs of any change in tone.
Overnight, we’ve seen some volatility on the Aussie as RBA governor Stevens has given testimony to the Australian parliament. Whilst the currency was initially higher to the 0.9320 area, we’ve seen a pull-back, partially on the dollar strength, but in the background were the Governor’s comments on the currency, where he pointed out that the risk of an Aussie fall had been “materially underestimated” by the market. It was not really a significant change in tone, but was certainly a reminder that the central bank remains sensitive to currency developments and acts as a further warning to those wanting to push the currency higher.