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GBP/USD pushes through 10-month highs as May signals possible delay to Brexit

By Alex Edwards

GBP/USD is closing in on a break of a 10-month high this morning after Theresa May announced yesterday that she would allow Parliament to vote on delaying the UK’s departure from the EU should they reject her deal in March. As far as markets are concerned, a delay means less chance of a ‘no deal’, and so positive for the UK economy. Sterling also benefitted from Labour leader Jeremy Corbyn’s announcement that his party would back a second referendum on Britain’s membership of the EU.

However, as the pound moves higher investors continue to cautiously monitor Brexit headlines – there are still plenty of different scenarios that could play out, making for a potentially volatile next few weeks. Preparations are still underway for a no-deal Brexit; BoE Governor Carney announced yesterday that the bank would offer more liquidity to bank around any exit date.

Investors will now turn their attention to another parliamentary debate, with votes due on various amendments to the Withdrawal Agreement.

The greenback fell to a three-week low on Tuesday against a basket of currencies as Federal Reserve Chairman Jerome Powell repeated that the U.S. central bank would remain patient on monetary policy, suggesting that it was unlikely to raise interest rates anytime soon.

The US will release December Trade Balance, January Durable Goods Orders, and Pending Home Sales today.

The euro further advanced against the USD yesterday to hit a one-week high of 1.1380. These gains can be attributed to developments in Brexit, as UK PM Theresa May has advised that a vote would be done to extend the Brexit leave date of March 29th to no later than June 30th, to avoid having the UK participate in European parliamentary elections. German Consumer Climate also came back on target with its forecast yesterday, at 10.8.

AUD/USD has traded a fairly flat range over the last 24 hours and despite the release of weaker than expected data by way of ‘Construction Work Done q/q’ it’s held up well and opens this morning at .7170.

Local AUD/USD traders will be looking to Private Capital Expenditure data, due for release tonight, for further direction.

The Canadian dollar is slightly lower this morning when valued against the greenback, having fallen below the 1.3200 level amid weaker oil prices. Crude oil prices added to the slump, triggered by US President Donald Trump's comments.

The New Zealand dollar enjoyed modest gains through trade on Tuesday, edging marginally higher on a sustained appetite for risk and broader USD softness. The New Zealand dollar stopped just short of breaking through 0.69, touching intraday highs at 0.6898 as investors and markets stabilised, consolidating recent moves and electing to maintain ranges.

Having largely shrugged aside RBNZ moves to increase capital bank requirements the NZD has enjoyed a sustained upside as optimism surrounding US-China trade relations bolsters demand for risk, while the Fed affirmed its commitment to patience and data dependency.