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Small relief for Sterling after Raab – Barnier talks

By Hamish Muress

Is Brexit Secretary Dominic Raab showing up his predecessor David Davis already? Well judging by the reaction from sterling yesterday this may very well be true. Sterling has long hung on the progress of Brexit talks and the same could be said with yesterday’s performance as the pound headed northwards, indeed it was yesterday’s best performing currency. Whilst nothing concrete was announced the tone was generally positive with a commitment from both sides to continue talks and negotiations ongoing without interruption. The most interesting comments perhaps came from Raab when he said that “Our challenge for the coming weeks is to try and define an ambitious partnership between the UK and the EU – a partnership that has no precedent”. This is definitely the case, and there certainly is no expected precedent in the Brexit outcome a factor that has caused the markets to constantly be on edge and create the volatility that we have seen in the pound ever since 2016 and until March next year, this is set to continue.

The most interesting news out of the US yesterday was the high court room drama unfolding simultaneously regarding the President’s former lawyer Michael Cohen and his former campaign chief Paul Manafort. Cohen pleaded guilty to violating campaign finance laws and directing funds on behalf of ‘the candidate’ for the purpose of influencing the election. Cohen’s defence lawyer asked the very prudent question following the plea that if election-related payments are a crime for his client then why wouldn’t they be a crime for the President. Manafort meanwhile was found guilty of several counts of tax and wire fraud and this case marked the first into the investigation into Russian collusion in the 2016 election. The key question around these two verdicts is how it will affect the President and USD and the answer is that Trump will probably shrug this off whilst bigger risks to the dollar are from the yield curve inverting and progress in the China – US trade talks.

EUR/USD was buoyed yesterday following the two verdicts out of the US as it gained 0.8% against the USD. The Euro has quickly moved away from the levels last week when we saw 13 month lows and now EUR/USD is testing 1.16 once again. This move has been driven by the reduced risk and concern around the situation in Turkey as well as the small progress between the US and China with regards to trade negotiations. It should be noted though that both of these risks still remain prevalent and therefore so does the risk to the Euro.

There is no rest for the wicked for Australian Prime Minister Malcolm Turnbull as he faces a second leadership challenge just this week from Peter Dutton, his former home affairs minister. It was only yesterday that the PM narrowly defeated Dutton in a leadership challenge by just 13 votes and since then four of Turnbull’s ministers have since resigned. The Aussie dollar is still very sensitive to the ongoing US – China trade negotiations as well with the currency losing around a cent to its US counterpart.

The Canadian dollar will be focusing on retail sales figures released later today but with wholesale number vastly missing expectations then the Canadian dollar could come under pressure. This is despite the relative strength of the Canadian economy and labour market at the moment.

Despite another drop in dairy prices yesterday (the 10th this year) the Kiwi in fact preformed relatively well shrugging these numbers off. Dairy is the country’s largest and most important export and there are questions about how long these declines in prices can be shrugged off by the New Zealand economy.