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Sterling higher as Theresa May takes control of Brexit negotiations.

By Jake Trask

Sterling has continued to rally throughout the past 24 hours following last week’s drop below 1.30 against the dollar. With a lack of fundamental data this week from the UK traders may be eyeing up next week’s interest rate decision from the Bank of England and starting to price in a hike. Another small crumb of comfort may be reports that UK PM, Theresa May is set to take charge of Brexit negotiations going forward. With former Brexit Secretary, David Davis resigning in the wake of the new plan for future trade/customs being revealed it appears the PM will be taking a more assertive role alongside new Brexit Secretary, Dominic Raab. We could see a (very) limited recovery in sterling over the next six weeks as parliament has its summer break and Brexit news thins out a little however we are now only three months before a future trade/customs plan is meant to have been thrashed out by so it could only be a temporary reprieve. GBP/USD is back above 1.3150.

The dollar has steadied after dropping last week on Trump's twitter tirade and staging a recovery at the start of this week. It is trading in narrow bands against both its main trading peers with EUR/USD caught between 1.1660 and 1.1715 for the past 24 hours. USD/JPY is much the same moving between 111 and 111.45 as traders await the two key data-sets of the week. Tomorrow sees the ECB interest rate decision with no change of policy expected before Friday's advance Q2 GDP print from the States. An annualised increase of 4.1% is expected as the US economy moves up a gear. Should the print beat forecast then expect a dollar rally as the likelihood of four interest rate hikes from the Fed rises. Ahead of this we have Durable Goods Orders m/m tomorrow with a 3% rise overall and a 0.5% increase for the core component expected.

As mentioned earlier, tomorrow sees the latest ECB interest rate decision with no change all but guaranteed from the Governing Council. It’s unlikely there will be any hints with regards to the timing of future rate hikes other than they will occur mid-2019. As we approach August things will likely quieten down as they generally do over the holiday period however there is always Donald Trump to keep people on their toes! This morning’s one print of note has been a slightly better than expected German IFO Business Climate survey which came in at 101.7 rather than 101.6 predicted. The survey has taken a big leg down of late printing 114.7 in March before dropping to 102.1 in April as Trump-fueled trade concerns weigh on German business sentiment. GBP/EUR is a little higher currently trading around 1.1245.

Australian inflation undershot a little overnight with the overall reading missing target coming in at 0.4% q/q slightly lower than the 0.5% that has been penciled in by the markets. The accompanying Trimmed Mean reading, that strips out the most volatile 30% of products used to measure price rises hit the 0.5% that had been expected. The slight miss means rate hike expectations will have been pushed deeper into 2019 especially with the trade concerns weighing over China, Australia’s biggest trading partner. AUD/USD has fallen from .7435 to sit around 0.74 at present. GBP/AUD is around 1.7760.

Today’s US Crude Oil Inventories is expected to show a drop of 2.6m barrels held by US business’ last week. This is today's only piece of top-tier data that will likely impact the loonies value. Moves later in the week will come from the aforementioned ECB rate decision and more likely the US GDP number. The next domestic data-set that will move CAD is Tuesday’s monthly GDP print. GBP/CAD sits at 1.7290.

The Kiwi dipped overnight as Trade Balance figures showed a NZD113m deficit when a NZD200m surplus had been predicted for June. Extra downward pressure was exerted by the Australian inflation miss seeing NZD/USD dropping as low as .6785 when it has been at .6810 a few hours earlier. GBP/NZD is at 1.9330.