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Sterling rallies as soft-Brexit plan outlined by UK government.

By Jake Trask

Sterling gapped higher this morning as Asian markets reacted positively to the news of UK Prime Minister, Theresa May’s cabinet agreeing to her plan for a future trading relationship with the EU after Brexit. The agreement sees an avoiding of a hard Irish border as the UK would levy EU taxes on its behalf, would end the free movement of people and end the European Court of Justice’s input in UK affairs. The agreement overall has been seen as towards the softer end of the Brexit scale with hardliners not happy at some of its proposals. The main fallout from the agreed common position is that Brexit Secretary, David Davis has resigned stating in his resignation letter that “the national interest requires of a Secretary of State in my Department that is an enthusiastic believer in your approach, and not merely a reluctant conscript.” A white paper is due later this week outlining the full approach the government will take and it appears holders of sterling like the soft-Brexit plan however not the political ructions it has caused internally within the Conservative party. After moving higher cable fell back on the news re: David Davis. The response to the plan from the EU will be closely monitored so it could be a very volatile week for the pound.

Away from Brexit politics we have the first official monthly print for GDP being released by the ONS tomorrow, there will still be quarterly prints like before however we will now get a monthly update of the month before lasts estimated performance (this release will give a prelim reading for May). We also have Manufacturing Production figures tomorrow and a speech by Bank of England Governor, Mark Carney on Wednesday. GBP/USD is heading north having moved above 1.3350 as London came online.

Friday saw the dollar slip as the monthly jobs report saw the headline Non-Farm Payrolls figure beat estimates coming in at 213k, higher than the 195k predicted. The previous months figure was also revised higher to 244k from 223k however the wages numbers and unemployment level caught the markets attention and the dollar was sold off as a result. Monthly Average Hourly Earnings rose 0.2% less than the 0.3% penciled in and the unemployment level increased to 4% from 3.8%. The mixed results were seen as a net-loss for the dollar and EUR/USD rose from around 1.17 to 1.1750 on the news. Data-wise its relatively quiet this week from the States with Thursdays CPI number the main event of note.

This afternoon could see some euro volatility as European Central Bank chief, Mario Draghi gives an update in Brussels about the health of the economy and monetary policy to the European Parliament Economic and Monetary Affairs Committee. After Fridays disappointing US jobs data the euro remains well bid and upbeat comments from Draghi, will likely see EUR/USD retake the 1.18 handle. This week’s big release from the EZ is Thursdays ECB Monetary Policy Meeting Accounts from the June meeting where an end of the QE stimulus programme was confirmed. GBP/EUR currently sits at 1.1335.

Broad-based dollar weakness since Friday has seen equity markets and the commodity currencies rally as the chances of four rate hikes from the Fed this year receded slightly. All major Asian and European bourses are higher this morning and AUD/USD is heading back towards .75 as I write. The only major release from Down Under this week is tonight’s NAB Business Confidence survey for June. GBP/AUD trades at 1.7865.

Fridays Canadian data, a bit like its southerly neighbour was a mixed bag. An extra 31.8k were added to the workforce for June beating forecasts however Trade Balance and Unemployment rate figures mixed target. The Unemployment level ticked higher to 6% from 5.8% which saw the loonie sold off throughout the afternoon with USD/CAD breaking below 1.31 by the end of the European session. GBP/CAD sits at 1.7470.

The Kiwi has also benefitted from risk-on trade from the US Jobs Report. NZD/USD started the month under .67 however it has rallied over recent days and now sits around .6850. It’s a very quiet week this week from NZ however we may get some movement on the back of Thursday night’s Business NZ Manufacturing Index reading. GBP/NZD is at 1.9510.