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Pound plummets on Brexit blues.

By Jake Trask

It was another miserable day for the pound yesterday as Brexit concerns saw it sold off throughout the European session. A report in Bloomberg citing unnamed sources said UK PM Theresa Mays Brexit team were unable to reach a common position on how to move forward in negotiations with the EU. GBP/USD dropped from around 1.29 to briefly break below 1.28 before recovering modestly. The pound has steadily fallen for the past three weeks as optimism we were going to get a Brexit deal at this month’s EU summit quickly evaporated. It’s likely to be a rocky road for sterling as we near Christmas with Brexit related news the only real concern for forex markets. Cable currently is just above 1.28.

It’s a big day for the dollar with lunchtime seeing the first estimate of Q3 growth from the United States. A slowdown from Q2s 4.2% to 3.3% is predicted as the rapid economic expansion seen earlier in the year is seen to have peaked. Obviously, a print higher than forecast should see the dollar rally as it will raise the likelihood of more 2019 rate hikes from the Federal Reserve. Should the Fed hint at more hikes then we can expect more barbs from Donald Trump to be aimed (likely via Twitter) at US Federal Reserve Chairman, Jerome Powell who he has repeatedly criticised of late for his regular interest rate hikes. USD/JPY trades around 112 with EUR/USD at 1.1380.

The latest interest rate decision from the European Central Bank came and went without too much fuss. Rates were kept on old and ECB chief, Mario Draghi indicated that although there was “concern” with “uncertainties” in the bloc (a point to the impasse with regards to Italy’s budget) this was far from being outright panic. EUR/USD which had been trading around 1.14 at the start of the press conference peaked at 1.1430 then fell away to around 1.1370 leading to it being seen as a slightly dovish briefing. GBP/EUR trades at 1.1265.

The Aussie has fallen away this morning as global equity markets dip on risk-off sentiment. USD/CNY is close to breaking through 7.0 for the first time in 10 years despite assurances from the Peoples Bank of China that it isn’t deliberately devaluing its currency. Chuck into the mix the ping pong being seen between the Italian coalition and the European Commission over its proposed budget and you get a capped Aussie. Next Tuesday night’s CPI data from Australia is the next big domestic event of note that will move the local buck. AUD/USD is down to .7040 and GBP/AUD sits at 1.82.

The loonie has given up the gains seen after the Bank of Canada raised interest rates on Wednesday. BoC head, Stephen Poloz stated that Canada was approaching a level of neutral interest rates and also removed the word “gradual” from the statement when referring to the expected pace of tightening however the risk-off environment since then has seen USD/CAD push back up through 1.31. There is no data from Canada today so all eyes will be on US GDP. GBP/CAD is at 1.6830.

Risk off trade has pushed NZD/USD back below .65 as markets seek the usual safe haven of the Japanese Yen. There is no data of note at all due next week from NZ so risk sentiment and todays US GDP release will likely be the main driver of the kiwi for the foreseeable. GBP/NZD sits at 1.9790.