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May launches another Brexit offensive.

By Jake Trask

Sterling continues to be weighed on by Brexit uncertainty as we draw ever closer to the UKs departure from the EU. UK Prime Minister, Theresa May is due to start another diplomatic offensive this week with the aim of trying to convince EU leaders the only way to avoid a no-deal scenario is for some concessions with regards to the Irish border backstop. It’s a crunch week for May as it looks like next week could see parliament take over negotiations if the deadlock continues. Parliament is due to vote on the 27th Feb on a proposal that would give the house more control over the whole Brexit process which could mean the end of Mays proposed deal and would also very likely lead to a request to the extension of Article 50 from the UK. GBP/USD has been sold off over the past three weeks as the uncertainty once again grips the pound. We are currently trading around the 1.29 handle. The one set of data of note this week from the UK is tomorrows wage growth numbers, with an annualised uptick of 3.5% expected.

The US is enjoying a long weekend on the back of the Presidents Day public holiday. US markets are closed however that hasn’t stopped positive news re: trade coming from the States. Donald Trump yesterday tweeted: “Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!” The positive comments come ahead of further talks scheduled for Washington this week with markets hoping that the March 1st deadline to get a deal done will be extended by the President. Equity markets around the world have started the week higher as a result. Wednesday night sees the minutes from the last FOMC Meeting published with analysts looking for clues over the timing of the next interest rate, if there is one at all. USD/JPY trades at 110.57 with EUR/USD at 1.1305.

Friday saw the release of GDP data from the Eurozone with the bloc showing 0.2% growth for Q4 2018 matching the performance of Q3. The main talking point however was that Germany was seen to have avoided a recession by the narrowest of margins with latest data showing a flat reading for its Q4 GDP. After Q3s -0.2% another negative figure would have constituted a technical recession so it was a very close call. The Eurozone continues to be weighed down by the China/US trade deadlock and the potential for a no-deal Brexit. It seems European Central Bank chief, Mario Draghi may well depart his role in November without ever having raised interest rates. GBP/EUR trades at 1.1420.

Risk on trade has lifted the commodity currencies this morning with AUD/USD rising to .7150 handle at the time of writing. There is plenty due domestically from Australia this week with tonight seeing the publication of the latest minutes from the Reserve Bank of Australia’s last policy meeting. Tomorrow night sees wage growth numbers and Wednesday night bring employment figures. We also have RBA Governor, Philip Lowe speaking to MPs on Thursday night. GBP/AUD trades at 1.8060.

Friday’s main talking point from Canada was a woeful Manufacturing Sales print for December. The expected rise of 0.3% m/m actually showed a contraction of -1.3% with the previous months -1.4% revised lower to -1.7%. The poor reading weighed on the loonie throughout the afternoon however the benchmark USD/CAD cross actually slipped as poor Retail Sales numbers from the States were more closely scrutinised. GBP/CAD trades at 1.7095.

NZD/USD has done little since this time yesterday, trading a range between .6805 and .6855. It opens this morning at .6825 with the range likely to remain narrow, at least until we start hearing news from the US-China trade talks.