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May on the brink as Brexit bill approved in principle

By Jake Trask

It was another volatile day for the pound yesterday as the UK and EU informally agreed to a withdrawal agreement. The draft proposal is due to be confirmed at a meeting between the two sides on the 25th November however the deal still has to be approved by the House of Commons which is probably the reason GBP/USD is still relatively range bound. Cable jumped between 1.2880 and 1.3070 throughout the day as traders digested the detail of the plan. Some would have assumed a pound rally would be on the cards given the agreement looks likely to be given the green light at the end of the month however PM, Theresa May’s position is looking more precarious than ever on the back of the proposal. May is due to face parliament later today where she is likely to face a grilling from Brexiteer MPs with rumours that she will face a vote of no confidence. GBP/USD currently trades below 1.29, depressed by political uncertainty.

The dollar has lost some ground over the past 24 hours as risk-on trade saw the greenback sold off. Yesterday’s main data set from the States saw CPI and core CPI hit target with a monthly rise of 0.3% and 0.2% respectively. The rise in prices is likely to have cemented the opinion of Fed members that a December hike in interest rates is necessary with at least two more due for 2019. Later today we have Retail Sales numbers with a rise of 0.5% expected m/m. USD/JPY trades around 113.50.

The euro rose on the back of the proposed withdrawal agreement between the UK and EU with EUR/USD pushing up through the 1.13 handle to currently trade at 1.1340. The ongoing Italian budget impasse is likely to provide an ongoing headwind for the shared currency for at least the next couple of weeks however. Data-wise Q3 GDP came out as expected for the Eurozone as a whole, rising 0.2% for the quarter. The fly in the ointment however was German growth figures which showed a faster than expected contraction of -0.2% for the July-September period. Global trade concerns are affecting the EZ engine room with its car sector suffering on the back of US President, Donald Trumps trade offensive with China. GBP/EUR trades at 1.1425.

There was good news from Down Under overnight as jobs data beat expectations with the level of unemployment holding steady at 5%. An estimated 32.8k were added to the workforce in October around 50% higher than forecast with the positive news supporting the local buck. The Aussie rallied on the news with AUD/USD pushing up towards the .73 handle however it has failed to break through the big number. GBP/AUD trades at 1.7780.

USD/CAD continues to trade in its recent ranges just above the 1.32 handle. US Crude Oil inventory numbers are due later this afternoon and any shortfall in stockpiles is likely to bolster the loonie. Aside from this it is another quiet day from Canada so risk sentiment will likely be the main driver in CAD rates.

NZD/USD has got its head above the .68 handle again however there is plenty of resistance between .68 and .69 so it may prove tricky to push much higher without some positive local news. The only event on the horizon which could help the kiwi is tonights Business NZ Manufacturing Index number. GBP/NZD sits at 1.8875.