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Markets await ECB interest rate decision.

By Jake Trask

Brexit deadlock continues as we near next week’s series of parliamentary votes scheduled to begin on Tuesday. Attorney General, Geoffrey Cox’s ongoing discussions in Brussels over the Irish backstop is yet to achieve anything so the odds on an extension to Article 50 being requested next week continue to grow. The talks are likely to carry on over the weekend with Brexiteer MPs hoping for some sort of reassurance from Cox that the backstop situation will only be temporary despite the EUs unwillingness to change the wording in the agreement. As it stands the pound has priced in a defeat of Mays plan on Tuesday so GBP/USD is likely to remain range bound or possibly lose some value unless some positive news emanates from Brussels before then. GBP/USD trades around 1.3160.

There was bad news for President Donald Trump yesterday as official date showed that the US trade deficit with the rest of the world soared to a 10 year high of $621b despite Trumps trade offensive to try and reduce the imbalance. It’s likely that a strong dollar helped aid the rise with overseas being cheaper due to the advantageous exchange rate however this can’t account for everything and this will be a major blow to the President. Yesterday’s data saw the ADP Non-Farm Employment Change just fall short of estimates showing 183k instead of 190k for the month of Feb. Official data is due tomorrow with a similar figure predicted. The dollar remains well bid as the trade dispute rumbles on with EUR/USD at 1.1310 and USD/JPY at 111.71.

Today sees the latest interest rate decision from the European Central Bank offering a welcome distraction from Brexit and Trade related news. No change in policy is expected to be confirmed by bank chief Mario Draghi however the key question is whether he will offer any extra liquidity in an effort to stimulate an economy that has slowed over the past six months. No further QE is expected however cheap bank loans may be offered similar to previous measures implemented by the bank. Positive outcomes over Brexit and US/China/Trade could be seen by month end so he may decide to sit on his hands for the time being. GBP/EUR trades at 1.1645.

There was mixed data from Down Under overnight with January Retail Sales figures falling short of expectations at 0.1% growth however this was tempered by a better than expected Trade Balance number of AUD4.55b for the same month. AUD/USD continues to hold above the key .70 level for the time being however should there be further comments over the possibility of rate cuts from Reserve Bank of Australia chief, Philip Lowe then we could soon be down in to the .69s. GBP/AUD sits at 1.8685.

The Bank of Canada stayed put on policy yesterday with the main interest rate held at 1.75%. The main takeaway from the accompanying statement was a lowering of expectations re: future rate hikes with the dovish tone sending USD/CAD up from 1.3375 to 1.3450. Tomorrows unemployment data is the next domestic event of note with unemployment expect to be held at 5.8%. GBP/CAD trades at 1.7670.

The kiwi remains depressed this morning as trade woes and a poor run of domestic data from Australia weigh on commodity currency sentiment. External factors such as the ECB rate decision, Chinese trade data and US jobs data will likely move NZD for the rest of the week. GBP/NZD trades at 1.94.