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Positive Brexit headlines give the pound a boost.

By Alex Edwards

GBP/USD slipped early on yesterday morning as the greenback continued its charge higher. A better than expected UK Services PMI print then gave the pound a bit of a lift, but so too did a mild about-turn in risk sentiment. The biggest market-moving news yesterday, at least as far as GBP was concerned, came from a Bloomberg news release that reported Britain and Germany were willing to drop key Brexit demands. Specifically, the report said “the British and German governments have abandoned key Brexit demands, potentially easing the path for the EU and UK to strike a deal”. GBP/USD gapped 100 points higher, back through 1.29 on the news.

What goes up……well, it didn’t last long. Within a couple of hours a German government spokesman said that their position on Brexit had in fact, not changed. The net impact on the pound was still positive however, and GBP/USD isn’t too far off yesterday’s highs in Thursday’s early European session.

It’s a broken record, but any Brexit related news will likely dominate today’s session. There’s no UK data due out today, and so as far as economic data goes, focus will turn to US employment numbers, due for release over the next couple of days.

Much of this week has been about the prospect of the US implementing new tariffs on $200 billion worth of Chinese imports by the end of the week. Yesterday we saw the release of U.S. Trade Balance data and despite the imposition of tariffs in July, the US trade deficit increased to $50.1 billion, a 9.6% increase from the previous month. The U.S. trade deficit increased to a five-month high in July as exports of soybeans and civilian aircraft declined and imports hit a record high, suggesting that trade could be a drag on economic growth in the third quarter.

Looking ahead today and the macroeconomic focus will be on US employment figures, the country will release the ADP employment Change for August, and Revised Unit Labor Costs for the quarter.

EUR/USD is up this morning as we see traders unwind some of their long USD positions, as well as the positive Brexit related headlines yesterday. As already mentioned, reports that Germany is ready to accept a less detailed agreement on the UK’s future economic and trade ties, in a bid to get a divorce deal done, supported the single currency. Economic news was also a bit of a mixed bag with PMI suffering downward revisions and retail sales also falling.

Moving into today, the euro looks to US non-farm employment and US PMI for direction. Traders will also be keeping a close eye on the headlines.

The Australian dollar finds itself in familiar territory this morning, flirting with the 0.72 level. Opening this morning at 0.719, the Aussie was well supported for much of the trading day yesterday with Q2 GDP surprising the market.

Globally, emerging markets were the big winners of the day with a rising wave of positive risk-sentiment forcing the USD lower across a number of emerging market and commodity currencies. The Aussie also benefitted from this, although it was limited, with a slow, gradual rise.

Out of cycle mortgage rate hikes are weighing on the aussie dollar a little currently, and dominating a lot of the personal finance headlines. Australian trade data printed stronger than expected overnight but was mostly shrugged off by local traders.

The Bank of Canada held interest rates steady on Wednesday as expected and reiterated that while more hikes would be needed to keep inflation on target. The overnight interest rate remains at 1.50 percent. The Bank of Canada has raised rates four times since July 2017 in response to a recovering economy. CPI inflation moved up to 3 per cent in July. This was higher than expected, in large part because of a jump in the airfare component of the consumer price index.

Looking ahead today and the macroeconomic calendar is fairly light with the only release Building Permits for the month of August with forecast of a lift of 1.1% from the previous month. On Friday all eyes will be on the Unemployment Rate decision which is expected to rise from 5.8% to 5.9%.

NZD/USD has tracked AUD/USD for most of the last 24 hours, riding the wave of improving risk sentiment. Looking ahead, the local docket remains light and therefore the kiwi will likely takes its direction from offshore markets, tonight sees US ADP Non-Farm Employment Change, always a key piece of data that takes a look at employment growth. On the technical front, we see support sitting at 0.6530 and 0.6500 with resistance up at 0.6600 followed by 0.6660.