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Trump to meet Kim again - May pushes for backstop renegotiation

By Jake Trask

It was a poor day for the pound yesterday as it succumbed to Brexit concerns with GBP/USD slipping back under 1.30 for the first time in two weeks. Starting the day around 1.3050 the first move lower was driven by a poor UK Services PMI which indicated the sector, which makes up 80% of the UKs economic output had ground to a halt on Brexit uncertainty. The report posted 50.1 just above a no growth level of 50.0 and down from last month’s 51.2. With markets expecting another reading around the 51 handle the pound dipped on the under-par print with the authors stating that fourth quarter GDP for 2018 is likely to show 0.1% growth when official figures are released next week and that Q1 2019 is likely to be flat. The move below 1.30 occurred as Theresa May spoke in Belfast to assure the people of Northern Ireland and the Republic of Ireland there would be no return to a hard border whatever the outcome of Brexit talks. Despite the warm words, the PM said nothing new on the subject and the markets decided to sell the pound as this highlighted the ongoing impasse between the two sides. May is set to meet politicians from the five main Northern Ireland political parties later today before travelling for another round of talks with EU leaders tomorrow. Away from politics tomorrow brings the latest Bank of England interest rate decision and Inflation Report however expect a lot of the guidance issued from Bank chief, Mark Carney to be hinged on future Brexit developments. GBP/USD is trading around 1.2950.

US President, Donald Trump delivered his State of the Union address to Congress last night with the major takeaway the confirmation that Trump is set for another face to face meeting with North Korean leader, Kim Jong-un in Vietnam at the end of the month. The President took time to criticise ongoing investigations into his election campaign as well as reiterating his intention to build a security wall along the Mexican border, although he stopped short of confirming he would be invoking emergency measures entitled to him as President to get it built. The dollar lost some ground against the yen and euro on the speech however the moves were fairly muted as much of the content was expected by the markets. Data-wise yesterday saw a miss for the monthly ISM Non-Manufacturing PMI which posted 56.7 lower than the 57.2 penciled in by analysts. EUR/USD is just under 1.14 with USD/JPY at 109.60 ahead of a data-thin day from the States and a risk-off environment globally.

It’s dead as a doornail in the Eurozone this week with no top tier data due again today. Tomorrows EU Economic Forecasts issued from the European Commission will be tomorrow’s main talking point with Italy’s recent drop into technical recession and the slowdown in Germany likely to drag on growth expectations for the bloc. GBP/EUR trades at 1.1375.

The main talking point from Down Under was a speech from Reserve Bank of Australia Governor, Philip Lowe in Sydney which pushed the Aussie lower. In the Q and A session after the speech Lowe opened the door to lower interest rates as a way of stimulating the economy. The hint of a possible move to a loosening of monetary policy sent AUD/USD falling from around .7240 to its current level of .7125. GBP/AUD trades at 1.82.

The Canadian dollar has weakened off as general risk-off trade weakens the commodity currencies and pushes Brent crude gently back towards the $61pb handle. Today’s main economic release from Canada is the monthly Ivey PMI survey which gauges economic health across a spectrum of sectors in the economy. A downward move from 59.7 to 56.4 is eyed. USD/CAD is up to 1.3190 with GBP/CAD at 1.71.

New Zealanders have been enjoying a day off work on the back of the Waitiangi Day national holiday. Tonight however we are due some market moving news with the release of the latest Unemployment Level which is predicted to tick up to 4.1% from 3.9%. NZD/USD is lower at .6850 with GBP/NZD at 1.8930.