Daily Currency Update

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Brexit shenanigans return.

By Hamish Muress

Theresa May suffered a minor setback yesterday evening as the government lost a vote on an amendment to the Finance Bill limiting the scope to raise funds in the case of a ‘no deal’ Brexit, in particular the ability to change taxes. Materially, this is an ‘inconvenience’ to the government because there are other avenues for the government to raise revenue but it does signal that Parliament is not prepared to support a no deal Brexit. Twenty Tory MPs voted against the government as well adding to the pressure that a ‘no deal’ will not suffice.

Sterling’s reaction to the news yesterday was muted but it has been only two days since MPs returned to Parliament and already Brexit is dominating headlines once again.

The US government shutdown continues to roll on and last night US President Donald Trump made his first live TV address to the whole nation from the Oval Office as he discussed the ‘crisis’ at the US-Mexico border although Trump did stop short of declaring the situation a ‘national emergency’. The government remains in partial shutdown for its third week as both the President and the Democrat controlled House of Representatives disagree over Trump’s plan for $5.7bn to build a steel wall on its southern border. Elsewhere Donald Trump and officials signaled yesterday that US-China trade talks were going well, a move that would be welcome to the equity markets.

Today the main talking point will be the Fed minutes which are set to be released following last month’s market changing meeting. Investors will want to see just how dovish sentiment is at the Fed currently ahead of any speeches from members later in the week.

More and more evidence is stacking up to suggest that the EZ stumbled over the line at the end of last year. Eurozone confidence faltered to its lowest levels in 23 months yesterday and this was followed by the slide in Germany’s industrial output in the morning. For Germany it would appear that the writing could be on the wall for a technical recession as the automotive sector weakens alongside the headwinds presented by the global trade war. For the ECB (and the Euro) ministers could be feeling that they can’t catch a break. Having finally ended its asset purchase programme in December and signaling that it could dip its toes into a tightening phase for monetary policy things could be set on hold if the headwinds hitting Europe are large enough. The glory days of 2017 growth seem a distant memory and the Euro may struggle this year as things stand.

The volatile Australian property market saw another violent swing overnight as building approvals for November came in at -9.1%. This was some miss on expectations and the lowest result since 2013 although the Aussie did managed to hold much of its ground against the USD due to renewed hope of a deal being struck between the US and China. Infact the Aussie edged to its strongest levels in 4 weeks against the Aussie. Watch out for today’s Fed minutes from the States which will play a large part on the currency pair.

Oil prices are dictating terms at the moment for the Canadian dollar with USD/CAD dropping off for the sixth day in a row. Oil prices have bounced recently adding strength to the commodity currency. All eyes today will be on the Bank of Canada and its latest interest rate decision although thoughts across the market are that no change will be made today.

The New Zealand dollar bounced back yesterday off the back of progress between the US and China over trade talks. The kiwi moved to back to Monday’s levels amid this renewed hope and any further news out of Beijing or from Donald Trump will be welcome for the currency.