eports out of both sides of the negotiations have taken a turn for the better in the past few days, allowing the Pound to briefly touch a near two month high against the US Dollar this morning. Prime Minister Theresa May yesterday stated that a divorce deal with the EU was nearing, calling for the bloc to show ‘goodwill and determination’ in order to secure a deal before the end of March exit date. There is now real optimism that a final agreement could be in place before next month’s summit, with the option of getting a deal done at an emergency summit in November, if required.

Comments from Bank of England member Vlieghe tempered gains for the Pound somewhat. Vlieghe stated that UK wage growth was improving ‘quite slowly’, suggesting that he may not be as hawkish towards the UK economy as some analysts had believed.

Trading today will continue to be dominated by Brexit headline, with macroeconomic news mainly taking a backseat. This morning’s inflation data for August could, however, shift the Pound should it materially deviate from consensus.

China retaliates with the announcement of fresh US tariffs

The Euro trailed off during afternoon trading on Tuesday, with an escalation in the US-China trade war causing investors to buy the safe-haven greenback.

Following Donald Trump’s announcement of fresh tariffs earlier in the week, China responded with the announcement of tariffs of its own on $60bn worth of US goods on Tuesday. While this is a relatively more modest sum compared to those levied by the US, traders are braced for the announcement of further protectionist policies in the coming days and weeks. US Treasury yields have shot up as a result, further supporting the Dollar, as investors believe that higher tariffs would push up US inflation and lead to a potentially faster pace of Federal Reserve interest rate hikes next year.

Next up for EUR/USD will be a speech by President of ECB Mario Draghi later this afternoon, who will be speaking at an event in Berlin. While there is a chance he could touch on monetary policy, any new information is unlikely given the lack of time passed since last week’s Governing Council meeting.