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Sterling yo-yos on Brexit rumours

By Jake Trask

It was a topsy turvy day for sterling yesterday as contradicting news re: Brexit sent it lower, higher then lower again. GBP/USD fell initially as comments over the weekend from former cabinet minister, Justine Greening that any Brexit plan presented to parliament for sign off is highly unlikely to pass. The comments reminded us that the withdrawal agreement is a two-step process. Firstly the agreement has to be agreed between the UK and the EU, then that agreement has to be rubber stamped by the parliament in the UK meaning if a deal is agreed with Michel Barnier and co before Christmas then it still has one major hurdle to overcome before any withdrawal arrangement becomes permanent. After Greenings comments, came some upbeat words from Barnier which pushed cable above 1.29 before it pared those gains again as jitters returned. We are currently trading around 1.2885 ahead of UK wage growth data, which normally is a market mover however expect a muted response given Brexit is the only domestic influence moving sterling at present.

US markets were shut yesterday as the annual Veterans Day bank holiday was observed in the States. This week’s main macro-event will be tomorrow's CPI number with both the overall and core readings expected to show a healthy monthly uptick of 0.3% and 0.2% respectively. As well as the inflation print there are two speeches this week from Fed Chairman, Jay Powell. Firstly tomorrow and more likely to catch dollar traders eye is a talk with Dallas Fed President, Robert Kaplan about economic issues within the American economy. The day after he will be discussing Hurricane Harvey relief efforts, again with Dallas Fed President Kaplan. With trade concerns, Italian budget deadlock and Brexit tensions rising the greenback remains well bid. USD/JPY is back above 114 highlighting this point.

This morning sees the latest German ZEW Economic Sentiment survey released which is predicted to be its eighth negative print in a row as the booming economic situation Germany enjoyed around a year ago fades. The slowdown in the German economy has been so dramatic that analysts are expecting growth to actually dip into negative territory for the first time since Q2 2014. The Q3 GDP figure is due to be published tomorrow first thing. Overall Eurozone growth data is released three hours after the German number with the EZ expected to show anemic expansion of 0.2% for the third quarter. The Italian budget situation continues to rumble on in the background. EUR/USD sits at 1.1245 with GBP/EUR up to 1.1475.

Overnight saw a dip in the monthly NAB Business Confidence survey which fell from 6 to 4. Alan Oster, NAB Group Chief Economist commented “Although conditions have eased since earlier in 2018, and have been a little volatile over recent months, business conditions remain well above average. This likely reflected a healthy business sector alongside the strength in economic growth through 2018. The decline in the month was driven by weakness in the employment component – though at these levels the survey still suggests ongoing employment growth at around 20k per month. At this rate we should see recent labour market gains maintained” Markets expectations for a rate hike from the Reserve Bank of Australia are deep into 2019 at present and these comments are unlikely to have brought this forward. AUD/USD has reclaimed the .72 handle this morning. With GBP/AUD at 1.7910.

Like the US, Canada also paid respect to fallen members of its armed forces yesterday with the Remembrance Day bank holiday. USD/CAD has managed to keep above the 1.32 handle despite Brent Crude dropping back below $70 a barrel. As mentioned yesterday it’s a quiet week from Canada with Friday’s mid-tier Manufacturing Sales m/m the only macro event of note that may move the loonie. GBP/CAD sits at 1.7080.

NZD/USD has managed to keep above the .67 handle currently trading around .6735. Similar to Canada there is little on the macro front this week from NZ apart from Thursday nights Business NZ Manufacturing Index print so global risk sentiment will be the main driver for the kiwi. GBP/NZD sits at 1.9150.