Dollar leads the currency markets; sterling and euro lose ground

FTSE, dollar higher in early trade

The markets are now rife with expectations that the Fed will imminently cut interest rates to the point that any comment from the Fed’s central bankers is being filtered that way, irrespective if it was really meant in this context. This is what happened with a sideways comment by a Fed official which then boosted Asian markets and helped European gauges open higher.

Talking about a low interest rate environment New York Fed President John Williams has said that it would be the wisest to cut rates at the first sign of economic trouble but the bank’s spokesman later explained that this was said in terms of a theoretical scenario and was not an indication of the Fed’s future policy plans.

Nevertheless, European investors took the comment and ran with it, being in need of positive news after the recent set of European corporate earnings which were mostly underwhelming. The FTSE gained 0.63%, with miners, oil firms and travel expert TUI leading the charge higher and the DAX traded 0.9% up.  

Further help for European shares came from the unexpectedly strong earnings from Microsoft which helped improve investors’ risk appetite.

Dollar leads the currency markets; sterling and euro lose ground

The dollar yo-yoed in line with the Fed's Williams' comment, and the subsequent clarification, ending up higher across the board before European markets opened.

Having been sliding consistently over the last few weeks the pound now looks as if it has formed a base against the euro and the dollar. The final tally of Conservative party votes on Johnson versus Hunt is due out Tuesday which will provide more clarity for the pound’s next direction.

Brent gains 1.2% as Gulf tensions rise

The tensions in the Persian Gulf are picking up again after the US reportedly shot down an Iranian drone, causing oil prices to spike 1.18% this morning. Brent crude is actually only trading at $62.66 which is not high given where it was in recent weeks but as the oil prices lost over 7% in the space of last week, this morning’s recovery looks more remarkable than it probably is. Still, with the situation in the Straits of Hormuz turning into a powder keg again, Brent crude prices will remain propped up.