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Trade truce helps calm the markets

GBP - British Pound

Friday saw GBP/EUR drop to a 5 month low as Brexit uncertainty still weighs on the Pound. With Boris still being the firm favourite, his commitment to leaving the EU on October 31st with or without a deal will most definitely prevent Pound advances for the foreseeable.

There was some relief for the quid as we closed the week, the final version of the UK GDP report showed that the economic growth stood at 0.5% during the first quarter of 2019, with the yearly rate holding steady at 1.8% and matching the original estimates. Meanwhile, the total business investment fell by 1.5% on yearly basis, against a 1.4% drop expected, but was largely offset by current account figures, showing a deficit of £30.045 billion, £32.0 billion expected.

The first week of the month is always a busy one in the FX calendar. We will have all 3 PMI’s for the UK, starting today with the manufacturing PMI at 9.30.

Key Movers

The big talking point over the weekend was the trade truce between US and China. The 2 powerhouses agreed to put a halt on further trade wars and restart negotiations to carve out differences on the future trade terms. The US President Donald Trump agreed not to levy fresh tariffs on Chinese goods and considered releasing some pressure off China’s Huawei in return of higher farm imports from China. The safe-havens have sold off as and the risk appetite has increased pushing the likes of the Aussie and Kiwi Dollar higher. However, it is still very uncertain how long this truce is going to last and thus this should only bring a short-term relief to the markets.

The Euro is still being met with some caution given the EU leaders’ inability to agree on top job announcements during the meeting in Brussels. The EU leaders are wrangling over to decide who will occupy the region’s top jobs with discussions still on-going and these could run until September.

This week will bring the U.S. jobs report for June along with reports on U.S. manufacturing and service sector activity, factory orders and the trade balance. On Tuesday the RBA is largely expected to cut interest rates but an upbeat overtone and maintenance of the risk on environment could help push the AUD back toward 0.71 US cents.

Expected Ranges

GBP/EUR: 1.1250 - 1.1125 ▲

GBP/USD: 1.2610 - 1.2720 ▼

GBP/AUD: 1.7980 - 1.8190 ▼

GBP/NZD: 1.8704 - 1.8904 ▼

GBP/CAD: 1.6430 - 1.6630 ▼