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Perky pound shrugs off Brexit impasse

By Jake Trask

GBP/USD has managed to keep its head above 1.30 over the past 24 hours as the likelihood of an extension to Article 50 being requested by the UK government grow. The official line from the EU remains that there will be no changes to the “backstop” element of the withdrawal agreement however given the recent economic woes encountered by the Eurozone there could be some movement on the issue in an effort to stop the bloc dropping into a no-deal induced recession. UK PM Theresa Mays meeting with EU Commissioner, Jean-Claude Juncker reportedly saw some progress being made on the issue however no concrete news has been reported. Back in Westminster three Tory MPs have left the party in protest at the handling of Brexit. Anna Sourbry, Sarah Wollaston and Heidi Allen have joined the eight Labour MPs who renounced party membership earlier in the week to stand as independents. GBP/USD is up to 1.3075 at present.

Uncertainties in the economy are a reason for a pause in hiking rates according to the release of the minutes from the latest Federal Open Market Committee meeting. The cautious tone was expected from the markets with little movement in dollar crosses on its release. The minutes stated: “Participants pointed to a variety of considerations that supported a patient approach to monetary policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook.” It went on: “A patient approach would have the added benefit of giving policymakers an opportunity to judge the response of economic activity and inflation to the recent steps taken to normalize the stance of monetary policy.” Today’s Philly Fed Manufacturing Index is expected to show a slip in the index from 17.0 to 14.1. USD/JPY is relatively unchanged over the past 24 hours currently sitting at 110.73 with EUR/USD at 1.1350.

The Eurozone’s monthly health check has seen mixed results this morning illustrating an economy that is suffering from anemic growth as a result of global trade tensions. The monthly PMI surveys showed better than expected results for manufacturing and services in France however the main takeaway was Germany’s poor manufacturing print of 47.6. The number is some distance into contractionary territory and the surveys worst reading since December 2012. This afternoon sees the minutes of the latest ECB policy decision released with the conversations likely to show no change in rates is in the cards anytime soon. GBP/EUR is at 1.1530.

There was another top tier data release from Australia overnight with its unemployment level holding steady as expected at 5%. The Aussie pushed higher however as the accompanying Employment Change figure printed more than double expectations at 39.1k. In a topsy-turvy evening the gains were quickly unwound however as one of the country’s biggest banks, Westpac, announced it expected the Reserve Bank of Australia to cut rates twice this year. A few hours later the Aussie took another leg lower as it was announced China had decided to ban coal imports from Australia through its Dalian port network. After peaking around the .72 level AUD/USD is back down to .71 with a bearish outlook hovering over the Aussie.

CAD was boosted yesterday afternoon with the news that Saudi Arabia would cut oil production beyond the levels already pledged to OPEC. The move saw Brent Crude pop through $67 pulling USD/CAD towards the 1.3150 handle. We have since retraced as the commodity currencies are sold off on the back of China’s Australian coal import decision. Tomorrow sees Canadian Retail Sales with another mediocre print eyed. GBP/CAD sits at 1.7255.

The Aussies coal fueled fall dragged its counterpart across the Tasman Sea down with it as the kiwi suffered on Chinas latest trade offensive. Further developments re: global trade will dictate NZDs direction for the rest of the week as there is little on the calendar domestically. GBP/NZD is at 1.9175.