Sterling moved sharply higher following reported comments from German Chancellor Merkel.

The Euro was unable to capitalise on a slight recovery in PMI data amid weak sentiment. The dollar was also hampered to some extent by weak PMI data with manufacturing edging into contraction.

Overall expectations of aggressive Fed rate cuts in September were, however, priced out which provided underlying US currency support ahead of Powell’s Friday speech.

US bond yields moved higher as immediate fears over the global outlook eased slightly with equity markets resilient as Chinese markets made gains.

Sterling moved sharply higher following reported comments from German Chancellor Merkel that the Irish backstop issue could be resolved by October 31st. A firm US dollar and global manufacturing concerns undermined commodity currencies.

Oil prices edged lower in choppy conditions as underlying doubts over demand continued.

The dollar was still able to resist significant selling pressure as other major currencies remained vulnerable. The Euro also failed to benefit from more positive Brexit rhetoric and EUR/USD settled below 1.1100. Rhetoric at the G7 meeting will have a potentially important impact given the potential for major rhetoric on trade and currencies with EUR/USD drifting lower to 1.1065 on Friday.

The August UK CBI retail sales index declined sharply to -45 from -16 previously and the weakest reading since December 2008. There was also a sharp underlying dip in confidence, although markets expected some recovery for September.

French President Macron emphasised that it was essential for the UK and France to maintain a privileged relationship with each other. He also stated that viability was need on the Irish backstop within the next 30 days.

The Macron press conference was, however, overshadowed by fresh comments from German Chancellor Merkel who stated that a solution to the Irish backstop issue could be found before the October 31st deadline. Sterling moved sharply higher on the reported Merkel comment with a GBP/USD push to 3-week highs above 1.2250. There were some concerns that the remarks had been misinterpreted, but an element of short covering continued, and GBP/EUR rallied to 1.1035. GBP/USD drifted lower to 1.2225 on Friday as traders faded gains due to underlying Brexit fears.

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