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Sterling slides as Brexit sentiment sours

By Jake Trask

Sterling has slumped since Friday as ongoing Brexit concerns weigh on the pound. As recently as Wednesday last week GBP/USD was close to breaking through the 1.32 level for the first time since mid-October. We are currently trading around the 1.2860 handle, a drop of over three cents as worries build about whether a deal between the UK and EU can be sorted by Christmas and if a deal is agreed whether it will be rubber stamped in the House of Commons. An agreement between the UK and EU is the only driver of sterling crosses at the moment. To highlight this point Friday saw the release of Q3 GDP from the UK which saw a very buoyant 0.6% registered as the latter stages of the World Cup and summer heatwave helped growth hit its highest level Q4 2016. Despite this normally market-moving release sterling barely batted an eyelid and in fact started to fall throughout the afternoon as Brexit worries once again took hold. This week sees UK wage growth, CPI and Retail Sales figures published however politics will be the markets primary focus.

With a booming US economy and the mid-term elections causing President, Donald Trump only limited damage the greenback continues to be the star performer of the G10 space. Friday saw pipeline inflationary pressures build with the monthly PPI and Core PPI figures beat expectations with 0.6% and 0.5% respectively. The Producer Price Index measures the monthly increase in the price of goods sold by manufacturers and should add upward pressure to the overall level of inflation. Later this week we have CPI and Retail Sales numbers from the States. USD/JPY trades at 114.15 close to its highest level of the year. Today is the annual Veterans Day holiday in the US so there will be thinner than normal trading conditions as the nation remembers the sacrifice made by its armed forces to protect the country.

Like the pound is being hampered by Brexit, the euro continues to be weighed down by the Italian budget impasse. The first budget proposal put to the EU by the Italian coalition government was rejected by lawmakers in Brussels so another draft is being prepared in Rome. The budget will likely be the main focus for most of this week as there is no top-tier data of note. Friday sees European Central Bank chief, Mario Draghi talk at the Frankfurt Banking Congress so any comments on the EZ economy, rate hikes or Italy will likely move the shared currency. EUR/USD trades at 1.1250; GBP/EUR is at 1.1420.

The dollars strong start to the week has seen the antipodeans fall against it. AUD/USD touched .73 for the first time since briefly hitting the big number in September. Its been a downward slide this morning however as the dollar reasserts its authority with AUD/USD now back under 0.72. Tonight sees the monthly NAB Business Confidence survey from Down Under with employment figures due Wednesday night. GBP/AUD is down to 1.7860.

Brent crude oil is up $2 this morning to $71.55 a barrel as Saudi Arabia announced a cut in output of 500k bpd starting next month. The move has added support to the loonie with USD/CAD holding around the 1.32 mark. Data-wise it’s dead as a dodo this week from Canada so news from its southern neighbor and the price of oil will likely be the main areas of focus. GBP/CAD is back below 1.70.

The kiwi has seen some of its recent gains eroded this morning as USD buying forces up the greenbacks price. Throughout November NZD/USD has risen from .65 and broke through .68 last week as strong local data, especially last week’s drop in unemployment bolstered the local buck. We are heading back towards .67 at the moment as the rally finally runs out of steam. GBP/NZD sits at 1.9140.