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Sterling rallies on diminishing “no-deal” prospects

By Jake Trask

Yesterday was another positive day for the pound as markets continue to see a diminishing chance of the UK dropping out of the EU without a deal. Sterling rallied on news that an amendment scheduled to be tabled in parliament by Labour MP, Yvette Cooper whereby if no deal had been struck by the end of Feb then Theresa May would be legally obliged to extend Article 50’s deadline until 31st December, thereby giving more time for an agreement to be found. Extra upward pressure was given to sterling later in the day as the Chairman of the pro-Brexit European Research Group, Jacob Rees-Mogg stated that Theresa Mays proposed withdrawal agreement could be “reformed” and that he believed things were moving their way with regards to the much opposed Irish border “backstop.” GBP/USD cracked 1.30 then 1.3050 and came very close to breaking 1.31 during the Asian session before some profit taking took place and it started to retrace. The main worry for the UK economy and pound traders is a disorderly exit from the bloc and as long as that is avoided, regardless if there is a second referendum or a general election or whatever, then GBP/USD should push higher. Cable currently sits at 1.3055

The US government shutdown rumbles on with this Friday's pay cheque looking unlikely to be received by nearly 1m federal workers. The division between the Republicans and the Democrats was laid bare yesterday evening when Leader of the House of Representatives, Nancy Pelosi withdrew her invitation to Donald Trump to give the annual State of the Union address. Trump initially indicated that he would look to give the speech elsewhere however admitted defeat and stated via Twitter he would give the speech in the House Chamber once the budget impasse had been resolved. With Democrats fervently opposed to granting Trump the funds he needs to build his hugely controversial wall along the Mexican border, the standoff looks likely to continue for a while yet leaving federal workers out of pocket and impacting on US economic growth. USD/JPY trades at 109.60 with EUR/USD at 1.1365.

We have seen another miserable set of Eurozone PMI readings this morning with many of the main prints missing target. The most eye-catching of the misses was German Manufacturing which printed 49.9 its first sub 50 reading since November 2014. It’s looking more and more likely that the Eurozone’s largest economy may have slipped into technical recession after Q3 2018 negative print. We get Q4’s number early next month. This afternoon we have the European Central Banks interest rate decision with ECB chief, Mario Draghi giving a press conference shortly after. No change in policy is due so comments from Draghi re: the health of the EZ economy and the timing of a future rate hike will be the main talking points. GBP/EUR fell just short of breaking 1.15 overnight, its currently back to 1.1485.

There was some good news domestically from Australia yesterday with the level of unemployment unexpectedly dropping back to 5% when a hold at 5.1% was predicted. AUD/USD jumped 25 pips to .7165 however the rally was short lived and the Aussie slipped back towards the .71 handle. Ongoing trade concerns between the US and China are being compounded by high levels of household debt are creating a headwind for the Aussie with many predicting a new level in the high .60s will soon be commonplace. GBP/AUD trades at 1.8380.

USD/CAD has pushed higher over the past 24 hours with it currently sitting at 1.3350. Yesterday saw some poor retail sales figures released with the overall reading and core number printing -0.9% and -0.6% m/m respectively. With Brent Crude falling back from $63pb to around $61pb the loonie has been sold off as a result. GBP/CAD trades at 1.7415.

After popping higher on Tuesday night’s higher than expected CPI print, the Kiwi has fallen away mirroring moves in the other commodity currencies. There is little domestic data of note to concern NZD traders so expect Brexit, US/China trade and the shutdown to the main movers of the local dollar. GBP/NZD trades at 1.9270.