EU Chief Negotiator Barnier stated on Tuesday that a deal was still possible this week.

Risk conditions were slightly less confident on Monday amid a more cautious assessment of Friday’s US-China trade deal, although narrow ranges prevailed.

Equity markets edged lower on Monday and bond yields also moved slightly lower given unease over the impact of existing tariffs. Equities moved higher in early Europe on Tuesday.

The dollar was held in very tight ranges with no rhetoric from Fed officials as EUR/USD held above 1.1000.

Sterling corrected lower after strong gains at the end of last week but recovered to post net gains in early Europe on Tuesday after positive rhetoric from EU chief negotiator Barnier.

Commodity currencies were unable to make headway. Oil prices were hampered by underlying concerns over demand conditions. Precious metals secured only slight gains as gold was held below $1,500 per ounce.

Overall narrow ranges prevailed with EUR/USD settling around 1.1025. Rhetoric from Fed officials will be monitored closely with futures markets still indicating over a 70% chance of a further rate cut at the October meeting. If the central bank wants to shift expectations, then the Fed will need to act this week before the blackout period comes into effect on Saturday.

Bank of England Deputy Governor Cunliffe stated that the economic outlook is weaker than anticipated a year ago while reiterating that gradual and limited rate increases were likely over the medium term while rates could move in either direction in the event of a no-deal Brexit. The Queen’s Speech had little impact given expectations that it would not be implemented.

Sterling was vulnerable to a correction following sharp gains at the end of last week and markets were also less confident over the potential for a Brexit deal this week after more cautious comments from EU officials. The Finnish Prime Minister, for example, stated that there was not enough time to reach a deal at this week’s Summit and a further Summit may be needed.

GBP/EUR rallied to the 1.1500 area before fading while GBP/USD found support above 1.2500. Sterling pushed higher in early Asia on Tuesday amid media reports of cautious optimism over EU talks. GBP/USD pushed back above 1.2600 while GBP/EUR reached 1.1500 with further volatility inevitable.

EU Chief Negotiator Barnier stated on Tuesday that a deal was still possible this week and attention must now focus on securing legal text. Sterling spiked higher with GBP/USD above 1.2650 and GBP/EUR near 1.1500 with the latest labour-market data also due for release.

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