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GBP/EUR hits 10 month low as Brexit comments haunt sterling.

By Jake Trask

Sterling continues to suffer on the back of comments over the weekend from International Trade Secretary, Liam Fox who put the chances of the UK exiting the EU without a trade deal at “60-40” in a Sunday Times interview. With little data of note this week until Fridays GDP print, the negative comments continue to haunt the pound. GBP/USD traded at its lowest level since September the 4th yesterday dropping to a low of 1.2923 during the US session. For those heading to the continent for a holiday the news isn’t much better as GBP/EUR is currently close to a 10 month low currently trading at 1.1135. Sterling bulls will be hoping for the good weather and England’s World Cup run mean GDP prints to the upside on Friday however a miss will mean another leg lower.

Despite trading high against the pound, the dollar has seen some weakness over the past 48 hours vs its two major trading pairs, the euro and yen. EUR/USD has pushed back up through 1.16 this week whilst USD/JPY has fallen back through 111. There is no major data pushing the moves so some pull back for the dollar after its recent gains and some yen buying on the back of falling Chinese shares are the likely drivers for the move. Chinese two major stock markets are down around 25% this year as fears over trade hit the local markets. Its another light docket today from the States with Fridays CPI numbers the main event of the week.

Its been a typically quiet August week so far from the Eurozone however there is some news emerging from Italy that is catching the market's eye. The recently formed coalition party primarily made up of separatist parties, the League and Five Star Movement are putting together a budget which they aim to implement next year. Finance minister, Giovanni Tria has sought to allay fears that the planned spending increases will not increase debt or lead to an exit of the Eurozone. The positive news has likely brought some very moderate support to the euro however markets will no doubt be skeptical over the claims given Italy’s debt to GDP ratio is around 130%.

Reserve Bank of Australia, Philip Lowe spoke encouragingly at a business lunch in Sydney overnight about the countries employment prospects stating he expected overall level of unemployment to drop from 5.4% to 5% in the medium term. He also cited the recent uptick in immigration (Australia's population recently rose through the 25m mark) as being supportive for growth moving forward. Despite the positive words little was said about monetary policy or inflation so the Aussie was relatively unmoved. GBP/AUD trades at 1.74.

The loonie slipped overnight as oil prices dipped yesterday afternoon. A shortage of US oil inventories this afternoon will help CAD reclaim some lost ground, the data is due at 3:30pm. Aside from this it is another quiet day from Canada with Fridays employment figures the next major event of note. GBP/CAD is at 1.6880.

Overnight saw quarterly Inflation Expectation numbers from New Zealand hit target at 2%. Respondents to the survey are business managers who give their expectations for changes in prices for goods/services they use over the next two years. The healthy number buoyed NZD/USD helping it rise from around .6730 to .6760 before retracing a little. Tonight’s big event from NZ is the Reserve Bank of New Zealand’s interest rate decision with no change in policy expected. As mentioned yesterday the statement and press conference will be the key areas of interest.