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Risk appetite recovers as Powell signals rate cuts

GBP - British Pound

UK construction PMI printed weaker than market expectations yesterday and put GBP on the back foot throughout most of the morning. It traded to a low of 1.2640 vs. the dollar.

As the day went on, it recovered. Moreover, GBP/USD reacted positively to a speech by Fed Chair Powell. Whilst he wasn't explicit, he did leave the door open to future Fed rate cuts should US-China trade tensions continue or worsen. As well, some trade tensions look to be easing, specifically the issue with Mexico. Mexico's President is due to meet with Vice President Pence today to discuss options ahead of June 10th, when the first round of tariffs are due to kick in, and markets are seeing this as a sign things are close to being rectified and tariffs not being implemented after all. US equities rallied in response, the dollar weakened, and GBP/USD firmed up.

The pound also got a lift from Services PMI this morning, which beat expectations, a bit of a surprise after the two weak PMI prints on Monday and Tuesday. GBP/USD opens this morning close to and above 1.27.

Key Movers

NZD got a boost overnight after the assistant RBNZ governor suggested that interest rates were unlikely to be cut anytime soon, and sounded reasonably upbeat on the assessment of the economy. NZD/USD pushed through .6630 on the news and opens this morning in London at .6640.

AUD/USD has continued to push higher too, which seems a bit at odds with the RBA's decision to cut rates earlier this week, and the release of weaker than expected Australian headline GDP overnight. The local unit seems to be taking its lead from improving risk sentiment and the recent equity market rally.

Looking ahead, traders will be looking to US jobs data today, this being a precursor to the more important Non-Farm Payrolls on Friday. Investors will also be cautious ahead of tomorrow's ECB monetary policy announcement, at which point we may hear of adjustments to growth and inflation forecasts, and may also get detail on TLTRO phase 3 - the central bank's longer term refinancing operation.

Expected Ranges

GBP/USD: 1.2650 - 1.2760 ▲

GBP/EUR: 1.1200 - 1.1300 ▼

GBP/AUD: 1.8100 - 1.8240 ▲

GBP/NZD: 1.9040 - 1.9300 ▲

GBP/CAD: 1.6940 - 1.7110 ▲