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Sterling continues to slide - Kiwi slumps on RBNZ.

By Jake Trask

Sterling’s slide continued yesterday with GBP/USD dropping below 1.29 for the first time in nearly a year as Brexit concerns continue to weigh on the pound. If it wasn’t the parliamentary recess and holiday season then there would have likely been some other news that may have lifted the pound however it’s a quiet time of the year and the markets’ focus remains on international trade secretary, Liam Fox’s “no deal” comments from the weekend. There is little data again today from the UK however tomorrow we finally get something to potentially take traders’ minds off Brexit by way of Q2 GDP numbers. An uptick from Q1’s 0.2% to 0.4% is predicted and should this beat estimates then sterling should get some temporary relief. GBP/USD is at 1.2860.

EUR/USD continues to trade around the 1.16 handle as traders continue to focus on the trade dispute between the US and China in the absence of any other major news so far this week. There is some modest dollar strength affecting the markets this morning with USD/JPY back above 111 and the commodity currencies a little lower against the greenback. We finally get some top tier data from the States today with PPI numbers due at 1:30pm. The Producer Price Index which highlights the change in prices of goods as they leave the factory is expected to increase 0.2% June to July, a slight decrease from the previous month. Tomorrow’s CPI number is the main event of note this week which is also expected to show a 0.2% monthly uptick.

The euro has slipped a little this morning as more news emanates from Italy re: its proposed 2019 budget. In an interview with Bloomberg, Deputy Prime Minister, Luigi Di Maio indicated he was willing to play hardball with EU policymakers in an effort to get his coalition government’s proposed budget pushed through. The new administration is hoping to implement a lower, flat tax rate and is hoping some flexibility will be granted by the EU with regards to a loosening of rules re: deficits to get the proposals enacted. Away from Italy it’s another quiet day from euroland with no data due this week, or indeed next. GBP/EUR remains depressed, falling to its lowest level since October 12th 2017 this morning. It currently trades 1.1095 after hitting 1.1072 earlier this morning.

The Aussie has fallen throughout the Asian session with AUD/USD heading back towards .74 as a slip in oil prices and Japans Nikkei index finishing in the red hitting risk assets. Next week’s unemployment numbers are the next event of note from Down Under so movements in the local dollar will be driven by external factors until then, in particular Trump/Trade. GBP/AUD is at 1.7325.

Yesterday’s US Crude Oil inventory numbers showed less of a drop than was predicted with reserves falling 1.4m barrels half the 2.8m barrels markets had priced in. The extra level of supply saw the loonie sold off on the release as Brent dropped below $72 p/b briefly. Tomorrow sees employment numbers from Canada with little data to occupy CAD trader’s minds until then. GBP/CAD sits at 1.6740.

The Kiwi lost ground overnight as the Reserve Bank of New Zealand kept interest rates at 1.75%. The decision to hold was all but guaranteed however the dovish message in the statement meant that expectations of when the RBNZ will hike rates has been pushed back to 2020 with a cut now also possibility. Business confidence has been hit recently as spending plans by PM, Jacinda Ardern’s government and the ongoing US/China trade issues weighing on sentiment. USD/NZD fell from 0.6755 to its current 2-year low against the dollar of .6645. GBP/NZD trades at 1.9340.