Overall risk appetite was fragile amid unease over US-China trade developments.

Overall risk appetite was fragile amid unease over US-China trade developments, although uncertainty dominated amid mixed rhetoric.

Equity markets were hampered by unease over global trade and growth trends while bond yields were slightly lower.

The dollar edged lower following Fed Chair Powell pledge to ease funding pressures, but registered net gains on the day as European currencies stumbled. Sterling declined sharply as UK government sources briefed the media that Brexit talks were close to collapse.

Oil prices were hampered by on-going demand concerns while API data was mixed. Precious metals were underpinned by weaker global equity markets, although gold was held in tight ranges.

Scandinavian currencies remained on the defensive amid European growth fears and traded near record lows.

EUR/USD again failed to break the 1.1000 level and was hampered by reports from the German government that there was no need for a fiscal package. The dollar also secured net support which pushed the pair to lows below 1.0950.

The dollar edged lower following Powell’s comments, although moves were limited, especially with no mention of a further rate cut at the October meeting and there were net gains. Very tight ranges prevailed with EUR/USD around 1.0960.

Ahead of the New York open, UK government sources suggested that a near-term Brexit deal was essentially impossible following comments from German Chancellor Merkel that Northern Ireland needed to stay in the EU Customs Union. German sources refused to release the transcript of talks with UK Prime Minister Johnson, but the antagonistic rhetoric was an important negative factor with markets seeing no real chance of a deal by the end of this week. EU Council President Tusk also issued an angry statement as tensions intensified.

There were further rumours of government attempts to avoid a Brexit extension and major opposition within the Cabinet. Markets assumed that the talks had effectively broken down and Sterling dipped sharply with a GBP/USD test of 1.2200. GBP/EUR pushed lower towards 1.1135 before a limited correction.

Rhetoric will continue to be watched very closely with Johnson due to meet Irish Prime Minister Varadkar later in the week. Choppy Sterling trading is inevitable with weak underlying confidence as GBP/USD was held near 1.2200 on Wednesday.

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