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Pound Falls On Brexit Headlines.

By Alex Edwards

The pound fell on Monday. UK Construction PMI, released first thing, was better than expectations printing at 52.5 vs. 52.0 and GBP/USD came close to breaking 1.34 on the news. Alas, it couldn’t quite make it, and then duly broke down through various support levels, losing close to 100 points on the day.

The war of words on US trade tariffs rumbled on too with Theresa May calling US tariffs “unjustified and deeply disappointing”. In other news, May is also set to delay the release of a Brexit white paper until after the EU summit at the end of June. Reports also revealed that the House of Commons will vote on the Brexit bill on 12th June, which gives them the opportunity to discuss 15 separate amendments made by the House of Lords. These headlines are hardly positive for the pound and GBP/USD has struggled to recapture any gains since the sell-off yesterday.

Attention now turns to UK Services PMI. Based on yesterday’s performance we can’t be sure that a beat will be necessarily good for the pound, albeit we could see an initial reaction. Also based on yesterday’s performance, expect any gains to be capped at 1.34, or at least just under the big figure.

The US dollar index finished the day slightly weaker yesterday. Risk sentiment was generally positive throughout the day despite the increasing US trade tensions, with the greenback most obviously losing ground versus commodity currencies such as the AUD. The release of weaker than expected US Factory Orders on Monday didn’t help the situation, although it wasn’t a particularly important set of data.

Today’s ISM Non-Manufacturing PMI will be watched more closely. Moreover, whilst better than expected US jobs data last week underlined the strength of the US economy and the near certainty of a Fed interest rate rise this month the lingering trade disputes will continue to contribute to a challenging backdrop for the USD in the coming weeks.

It was a mostly subdued session for the euro yesterday. As far as data went both Eurozone producer price data and Sentix investor confidence printed weaker than expected, but the relatively lower tier data was ignored by markets.

A host of European Services PMIs are being released as this commentary is written, but for the most part seem to have printed in line with market expectations. As such, and with little else on the horizon to drive near term volatility, it could be another subdued session for the single currency.

AUD/USD continued to push higher through the London and New York sessions yesterday, buoyed by better than expected local economic data that day and improving risk sentiment. It’s retreated overnight however, more likely a result of some mild profit taking ahead of the 77 US cent mark, rather than the RBA’s announcement a few hours ago that it had left interest rates on hold 1.5%.

The decision failed to surprise. In fact the announcement and accompanying statement was more or less a non-event and very close to being a repeat of May’s statement. The central bank highlighted that inflation was likely to remain low for some time, wage growth remains low and unchanged policy is consistent with sustainable economic growth.

Focus now turns to Australian GDP, which is due for release later tonight. It will take a big beat for markets to think the next central bank monetary policy announcement will be any different to last night’s.

Despite the risk-on sentiment in the market, the Canadian dollar only managed to gain 0.1% against the USD, closing the session at 1.2937 and trading within a tight range of 1.29 and 1.2965. It seems like the market is not yet convinced about the next Canadian employment data due out this week plus the developments of NAFTA negotiations.

A forerunner to the employment data on Friday will be today’s Labor Productivity. For the most part, the loonie will continue to take its lead from oil price fluctuations and the ever changing risk landscape.

NZD/USD has traded a fairly narrow range over the past 24 hours. There’s been no local economic data releases overnight and so kiwi traders have taken direction from offshore geopolitics, mostly. On the technical front, first levels of resistance in NZD/USD are at the 50 day moving average level of 0.7060 followed by the 200 day level of 0.7110. On the downside the pair remains supported in the short term at psychological levels closer to 0.7000 and June’s lows of 0.6960.