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Crucial week for pound with parliament set to vote on May's Brexit deal

By Jake Trask

It’s one of the most crucial weeks for the pound since the 2016 EU Referendum with parliament due to vote tomorrow night on UK Prime Minister, Theresa Mays proposed Brexit deal. After months of negotiating and in-fighting within her own Conservative Party, May agreed a deal in principle with the EU last month and tomorrow night MPs get to vote on whether they are happy to proceed by its terms. It’s looking likely that May is heading for defeat however the margin of defeat and the repercussions will be the main talking points. Should May lose and the EU offers a token amendment with regards to the Irish border then we could be set for another vote early next year whereby MPs may be inclined to switch sides and vote in favour of the plan “in the national interest.” If there is no such offering from the EU then we could be heading for a leadership challenge, general election and another referendum amongst other possibilities. A short time ago the European Court of Justice ruled that Britain can unilaterally revoke the Brexit vote and choose to remain in the EU. As a footnote today there is UK GDP and Manufacturing Production numbers for Oct-Nov period, don’t expect much reaction to this however as all sterling traders are concerned about at present is Brexit. GBP/USD continues to trade between 1.27 and 1.28 currently sitting at 1.2725.

The greenback has fallen on the back of a worse than expected jobs report published on Friday. The headline Non-Farm Payrolls figure showed an extra 155k added to the workforce in November, 43k less than expected. To add to the dollars woes last months number was revised down from 250k to 237k and the Average Hourly Earnings m/m also missed target showing a 0.2% uptick with the previous month revised lower to 0.1%. This miss in data combined with an inversion of the short dated yield curve of US Treasuries (which indicates the markets see a recession coming) and a dovish message from Fed Chairman, Jay Powell re: 2019 rate hikes has seen the dollar stall over the past few days. This week’s big number from America is US inflation figures with CPI due Wednesday lunchtime. USD/JPY sits at 112.70 with EUR/USD back above 1.14.

A weak dollar has benefitted the euro with EUR/USD reclaiming the 1.14 handle since Fridays US data-miss. Aside from the Italian budget saga it has been relatively quiet from the eurozone of late however we get some newsworthy events later this week with the European Central Banks latest interest rate decision due on Thursday. No change in interest rates is expected until the second half of next year however we should get final confirmation that its Quantitative Easing program has come to an end signaling another milestone in the EZ recovery since the financial crisis. GBP/EUR is down to 1.1140.

The commodity currencies rose on Fridays poor US data with AUD/USD jumping around 25 pips to .7235 before slowly retracing. With most stock exchanges around the world continuing to trade in the red this morning following last week’s sell-off the upward pressure from a weak greenback has been offset by a risk-off trading environment. There is only a couple of mid-tier data releases this week from Australia with tonight seeing the Australian Bureau of Statistics publishing its quarterly House Price Index ahead of Tuesday night’s Westpac Consumer Sentiment number. GBP/AUD is at 1.7625.

Friday’s eye-catching move in the G10 space was USD/CAD’s sharp drop on the back of better than expected Canadian employment figures. At the same time US data was falling short Canada’s unemployment rate fell unexpectedly to 5.6% when a hold at 5.8% was priced in. An extra 94.1k was added to the work force for November about nine times higher than forecast! Around the same time OPEC agreed to cut output of oil by 1.2m barrels a day leading to an intraday rise of Brent Crude from around $59pb to $63pb. All of this combined saw USD/CAD plummet from 1.34 to close to 1.33 in the blink of an eye. It eventually found support close to 1.3250 before relinquishing some of those gains. It currently trades just north of 1.33 with GBP/CAD at 1.6935.

Its all quiet on the kiwi front at the moment with another data-thin week ahead of us. US inflation figures, the parliamentary Brexit vote and Thursday nights Chinese Industrial Production and Fixed Asset Investment numbers will likely be the main drivers for the local buck. NZD/USD is just below the .69 handle with GBP/NZD at 1.8465.