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GBP/USD pops higher on reports that a Brexit deal is close.

By Alex Edwards

GBP/USD ticked higher through the day on Friday, supported in part by risking UK yields and some profit taking on long USD positions. A Reuters article yesterday also reported that a new proposal for an Irish border was also close, further supporting the pound and helping to push GBP/USD through 1.30. In fact, the Brexit news has been generally positive over the last 12-24 hours. Reports circulating this morning suggest a Brexit deal is “very close”, this again according to Reuters. GBP/USD has popped higher and is now close to breaking 1.3050. There aren’t many other details than that, but it’s good for the pound nonetheless, which is rallying against most major currencies this morning.

The Brexit headlines will no doubt continue to have an impact and whilst there’s no UK economic data due today, investors will be looking to US Non-Farm Payrolls this afternoon, which is set to increase potential for heightened volatility in the GBP/USD pair.

The US dollar’s advance stalled through trade on Thursday as investors appeared to take stock of Wednesday’s push through key technical resistance handles, and consolidated positions ahead of Friday’s jobs report. Having driven through 11 month highs, the dollar moved marginally lower as markets evaluated the impact of a rout on global government bonds amid speculation and uncertainty across emerging markets, Europe and China.

More generally, the USD dollar continues to outperform as strong domestic growth and a hawkish central bank paint a positive picture moving through the latter half of 2018 and onward into 2019, a stark contrast to broader global uncertainty and measured macroeconomic policy outlooks. While an argument can be made for a widespread USD correction the strains of emerging markets should continue to fuel demand for the greenback while the potential burgeoning gap in central bank interest rates ensures the dollar remains an attractive carry option.

Attentions now turn to todays’ jobs and wage growth print. Particular focus will be afforded to the Average Hourly Earnings report for a broader inflationary outlook. It will be critical in guiding short term direction.

The euro edged higher through trade on Thursday, staving off a consolidated push below support at 1.15 and edging back above this key technical handle. Having touched intraday lows at 1.1463 the 19-nation combined unit advanced on news Italy would review its deficit targets and reduce debt through the next three years.

Touching intraday highs at 1.1535 the euro opens this morning marginally lower but still comfortably above supports at 1.1500. Attentions now turn to US employment data for direction and guidance into the weekend while Italian political developments ensures headline risk continues to drive short term volatility. We continue to watch moves around 1.15 - a consolidated break and a weekly close below this target and yesterday’s low could signal a broader downward correction.

The Aussie dollar was again amongst the worst performing currencies on the day on Thursday as global equities fell sharply and rumors of Chinese industrial espionage ensured trade tensions remained front of mind for investors. AUD/USD is trading towards the bottom of its recent range this morning as risk appetite has retreated, largely driven by the surge in US treasury yields and the subsequent pricing of riskier assets. On the trade war front, US Vice Presidency Pence accused Chinese security agencies of stealing US technology including military blueprints.

On the local data front, Australian retail sales data printed in line with expectations, and didn’t do anything to stop the rot in AUD/USD. The key global risk event for today is US non-farm payrolls; markets are pricing an increase of 184K with the unemployment rate expected to retreat from 3.9% to 3.8%.

The loonie was hit from a number of fronts in overnight trading, including a strengthening greenback, softening oil prices and poorer PMI figures.

Kicking things off on the domestic front, Canada released the Richard Ivey School of Business’ PMI survey which showed a steep, negative discrepancy against the expected result. A leading indicator of economic health, the PMI figure came in as barely expansionary at 50.4 against an expected 62.3. The CAD was also unsupported in the commodity markets with a sharp fall witnessed in crude oil prices. West Texas Intermediate had rallied to its highest level in nearly four years yesterday, touching $76.9/barrel to ultimately reverse course and fall $2 on the day.

Moving into Friday, Canada looks to employment rate readings at home and in the US for direction.

The New Zealand dollar has fallen to its lowest level in more than two years on the backdrop of hawkish comments from Fed Chairman Jerome Powell bolstering expectations of an interest rate hike in December, risk selling, and rising trade war tensions. NZD/USD touched a low 0.6457 this morning, a level not witnessed since Jan 2016.