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GBP/USD drifts lower from levels not seen since October

By Alex Edwards

GBP/USD pushed higher through the afternoon session on Friday, largely a result of a sell-off in the dollar, this despite news breaking that a deal had been reached to temporarily end the US government shutdown. It’s been difficult to pin-point a precise reason for the move, but risk sentiment improved, evidenced by a late rally in equities.

Positive Brexit sentiment also played a part i.e. markets are increasingly pricing in less of a chance of a no-deal. The Sun newspaper reports that the PM has told her cabinet privately that she has ruled out a no-deal Brexit, which is seemingly lending further support to the quid this morning. That said, we saw a bit of a blip in the Asia session, partly in reaction to a weekend headline that Ireland would not be accepting of any changes to the agreement on the backstop.

All eyes on Brexit – that goes without saying – but traders will also have half an eye on a speech (or Q&A) by BoE Governor Carney today, although it could well be Brexit themed, as well as a host of US risk events by way of the FOMC Statement and press conference on Wednesday and Non-Farm Payrolls on Friday. Moreover, we get the Parliamentary vote on PM May’s deal on Tuesday as well as amendment votes. Investors are paying attention to the ‘Cooper amendment’ which would force the Government to ask the EU for an extension if a deal cannot be agreed on by the 29th March deadline.

The dollar was one of the weakest performing currencies on Friday. Sentiment towards risk was a little more positive, which helped. Investors don’t seem particularly convinced by the temporary shutdown agreement either, contrary to the improvement in risk demand.

It’s a big week for the buck this week. Headlines around the government shutdown will no doubt continue to dominate during the early part of the week, the US/China trade reports will probably simmer in the background, and two major risk events fall due by way of the FOMC Statement + presser and US employment data on Friday. We may also get a bunch of postponed economic data releases from the States.

EUR/USD pushed back through 1.14 on Friday against a backdrop of a weakening USD. It’s remained firm since and trades close to this big figure this morning.

The risk for the euro, today at least, is that ECB President Draghi sounds dovish on monetary policy – as he did in the ECB press conference last week – when he testifies before the European Parliament later this afternoon.

Later in the week German Prelim CPI is released along with a series of European Flash GDP prints.

Like most other currencies vs. the dollar, AUD/USD trended higher Friday. It’s been steady overnight and held on to these gains whilst it was a public holiday in Australia. Not a lot happened!

In terms of local data, traders will be looking to inflation data on Wednesday.

Like most other commodity currencies vs. the USD, the CAD is stronger this morning, this despite the drop in WTI Crude over the last couple of trading sessions.

There isn’t a whole lot of data due out from Canada this week. Attention will likely be focused on events from across the border by way of the interest rate decision on Wednesday and Non-Farm Payrolls on Friday, as well as developments around the government shutdown.

NZD has been one of the strongest performing currencies since markets opened early this morning. With little by way of local market news, the commodity linked currency continued to benefit amidst a backdrop of a softer greenback.

GBP/NZD is lower too, as the pound drifts from Friday’s highs and the pair opens in London at 1.9200.