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Pound slips ahead of Theresa May's Northern Ireland speech

By Jake Trask

With few new developments re: Brexit over the past few days GBP/USD has slowly drifted lower as the uncertainty surrounding the UK's exit from the EU next month has seen the pound sold off. From trading around the 1.32 handle early last week we are now down to 1.3045. Prime Minister, Theresa May is due to give a speech in Northern Ireland later today where she will reiterate her pledge to deliver a deal which avoids a hard border with the Republic of Ireland. Ahead of the speech, DUP leader Arlene Foster who’s party props up the Tory’s in government has called the current backstop arrangement as “toxic” on a BBC Radio 4 interview this morning. Later this morning we have the monthly Services PMI due with a small drop from 51.2 to 51.1 expected.

The dollar has pushed higher against the euro this morning with EUR/USD dropping towards the 1.14 handle in thin trading conditions due to Chinese New Year holidays across much of Asia. US President, Donald Trump is due to give his State of the Union speech at 2am tonight with the President likely to reiterate the need for Democrats to give in to his demands for billions of dollars to fund his wall along the Mexican border. The speech was delayed once due to the 35 day government shutdown which saw around 800k state workers go without pay until a temporary reprieve was agreed. Data-wise this afternoon sees the latest monthly ISM Non-Manufacturing PMI due at 3pm with a fall from 57.6 to 57.2 expected. USD/JPY sits at 109.90.

German Chancellor, Angela Merkel has stated there is still time to find a solution to the Brexit impasse in a speech in Tokyo early this morning. The comments have done little to support sterling however and it seems likely the clock will be run down to the last minute before any possible deal is agreed. Thursday morning sees the latest EU Economic forecasts released with downward revisions to growth likely compared to the last print four months ago. Italy has recently dropped into technical recession with Germany possibly due to follow it when official figures are released next Thursday. GBP/EUR trades at 1.1420.

Overnight has seen poor Retail Sales figures released from Australia for the month of December with a contraction of -0.4% seen when a flat figure was predicted. The Aussie dropped on the release with AUD/USD slipping to test the .72 handle before recovering as the Reserve Bank of Australia left rates on hold as expected. The accompanying statement was widely revised from Decembers with little change in tone which some may have expected would be more downbeat this time. GBP/AUD is at 1.8005.

With Brent Crude holding above $60 a barrel the loonie has seen some support as a result. It currently sits at the $62.3pb with USD/CAD trading just above the 1.31 handle. Tonight’s speech by Trump will be the main focus for markets with a conciliatory tone likely to benefit risk assets, whether we get that is far from certain however. GBP/CAD trades at 1.7095.

With the Southern hemisphere summer in full swing, Chinese New Year taking place and tomorrow seeing the national Waitangi Day holiday its very quiet in New Zealand at the moment. The one event of note from NZ this week will be Thursday’s employment figures with the unemployment level expected to tick up from 3.9% to 4.1%. GBP/NZD trades at 1.8935.