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Dollar recovers as May heads to Brussels.

By Jake Trask

GBP/USD fell away throughout yesterday’s European session as the greenback regained some of the ground lost on Monday. Domestically, last week’s Brexit panic that hit sterling hard seems to have calmed a little with no new resignations since the weekend and the number of letters from Tory MPs needed to be sent to trigger a no-confidence vote in Prime Minister, Theresa May still not being achieved.

The one news story that did see the pound wobble though was reports that Spains Government may veto any Brexit deal should the future of Gibraltar not be clarified in the proposed withdrawal agreement. GBP/USD fell to as low as 1.2775 however we are now back above the 1.28 handle ahead of Theresa Mays trip to Brussels to meet EU officials. The meeting with the President of the European Commission, Jean-Claude Juncker and others is expected to finalise the proposal ahead of it being ratified at a meeting of EU heads of state on Sunday. This will mean a big hurdle has been overcome however anyone expecting a jump in sterling crosses should bear in mind the agreement then has to be voted on in UK parliament which is currently looking a 50/50 shot at best.

The dollar regained some ground yesterday after a sell-off in the greenback on Monday. Mondays sell off was driven by an acknowledgement last week by US Federal Reserve Chairman, Jay Powell that the US economy may be starting to slow. For some time now people have been waiting for the dollar bull-run to come to an end and maybe we are going to see the end of it as Christmas approaches. Yesterday however the concerns dissipated somewhat and USD fought back forcing EUR/USD back below 1.14 again. Yesterday’s housing data from the States came in exactly as expected with Building Permits and Housing Starts posting an annualised 1.26m and 1.23m respectively. Today’s big release is Durable Goods Orders m/m due at lunchtime with the core number expected to post a 0.4% uptick while the overall reading should show a fall of -2.2%. USD/JPY trades at 112.85.

As mentioned earlier the euro fell away against the dollar throughout yesterday’s European session as some dollar strength returned to the market. Aiding the move was a widening in the spread between Italian and German 10 year yields which reached a one month high of 335bps on the back of ongoing Italian budget concerns. This has since retreated helping push EUR/USD back to the 1.14 handle. Tomorrow sees the minutes from the last meeting of European Central Bank being released with investors looking for clues over the timing of the ECB’s next rate hike as well as policy maker’s thoughts on the recent slowdown in growth seen in the EZ. GBP/EUR trades around 1.1230 towards the lower end of its recent range.

Risk off trade seen on Monday and Tuesday has seen AUD/USD fall from .7330 to test .72 during this morning’s Asian session. With European stocks opening higher this morning the Aussie has rallied as a return to risk-on trade benefits the local buck. It’s a quiet end to the week from Oz so global sentiment re: Brexit, Italy and the US economy will likely be the main drivers of Aussie crosses. GBP/AUD sits at 1.7670.

USD/CAD has seen a sharp rise over the past couple of days mirroring a steep drop in oil prices seen over the same period. The drop in oil, commodities as well as stock markets was part of a global risk-off move seen throughout the start of the week. Concerns over a slowing global economy has seen the price of Brent fall despite the reintroduction of sanctions with regards to trading Iranian produced oil. As a result USD/CAD rapidly rose from around 1.3150 to peak above 1.33 overnight. GBP/CAD sits at 1.70.

The swings seen in the Aussie this week have been reflected in the kiwi as risk off sentiment saw the antipodeans sold. With European stocks starting positively this morning NZD/USD is on its way back up, currently trading around the .6820 handle. GBP/NZD sits at 1.8760.