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Brexit Developments Leave Pound Volatile, US-China Trade Talk Progress Makes Risk-Taking Appealing

Pound News: Theresa May Pressured to Announce ‘Plan B’ if her Brexit Deal Fails

Yesterday saw UK Prime Minister Theresa May’s Brexit deal return to debate in Parliament, as the government was defeated over an amendment that could make the chances of a ‘no-deal’ Brexit less likely.

The amendment would accelerate the time in which the UK government must come up with a ‘Plan B’ if the Brexit deal is blocked by Parliament next week, giving the UK government just three days to put forward a ‘Plan B’ rather than the original 21-day deadline.

Parliament’s debate on May’s Brexit deal will continue today, through until next Tuesday’s vote. No notable UK data will be published today, leaving Brexit developments in focus.

Euro News: Weakness in Rivals Leaves Euro More Appealing

While the Pound was weighed by Brexit uncertainties and the US Dollar tumbled in reaction to the latest US-China trade developments and talk of a possible rate cut this year, investors bought the Euro. The Euro often benefits from weakness in the US Dollar, its biggest rival.

Demand for the Euro was further supported yesterday by the publication of the Eurozone’s November unemployment rate, which saw the key unemployment rate fall to its best level in ten years.

Aside from France’s November industrial production report, no notable Eurozone data will be published today. As a result, the Euro is more likely to be driven by strength in rivals like the Pound and US Dollar.

US Dollar News: Fed Speculation and US-China Trade Hopes Keep Pressure on USD

Investors sold the US Dollar during Wednesday’s US session, driven by speculation from Fed officials that the US economic outlook could be hurt by the ongoing US government shutdown, as well as dovish expectations for the Federal Reserve’s 2019 monetary policy outlook, which included hints about a possible rate cut in 2019 from Fed CEO Bostic.

The safe haven US Dollar was also left looking unappealing due to signs that US-China trade talks were seeing smooth progress. Speculation even rose that US President Donald Trump could announce a US-China trade deal as soon as the World Economic Forum in two weeks.

Reaction to the Federal Reserve’s December meeting minutes will continue to drive US Dollar demand today. Expected statements from the US and China regarding trade talks are also likely to prove influential.

Canadian Dollar News: CAD Continues to Gain despite Cautious Bank of Canada (BoC)

Expectations that the Bank of Canada (BoC) would hike Canadian interest rates further in 2019 despite slowing global growth kept the Canadian Dollar appealing yesterday, despite a cautious tone from the bank in its January policy decision in which rates were left static at 1.75%.

The bank expressed concern about Canadian growth and weaker oil prices during its policy decision on Wednesday afternoon. Despite this, the bank said that more interest rates would be needed to achieve its inflation target, leaving Canadian Dollar investors fairly bullish.

The Canadian Dollar could be in for further gains in the coming sessions if today’s Canadian housing stats impress, or if US-China trade negotiations make investors more willing to take risks.

Australian Dollar News: US-China News Keeps ‘Aussie’ Buoyed Despite Weak Australian Data

Yesterday’s Australian data was disappointing, revealing that November building permits unexpectedly contracted by a concerning -9.1% rather than the expected -0.5%.

Despite this, the Australian Dollar spent most of Wednesday’s session trending near its best levels versus the Pound. The relatively risky trade-correlated Australian Dollar became a lot more appealing as US-China trade negotiations were perceived to be going better than analysts expected.

Australian Dollar investors will spend today’s session reacting to NAB’s Australian business confidence data from December, but any big US-China trade developments will also remain influential.

Upcoming Data

 

Thursday, 10th January

12:30    Australian NAB Business Confidence

07:45    French Industrial Production

13:30    Canadian Building Permits

13:30    Canadian New Housing Price Index

13:30    US Jobless Claims

17:45    Fed Chair Powell Speech

 

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To keep up to date with the Euro, visit the EUR blog in our Currency News section.

 

James Spurway

Director Sales and Dealing

jas@fcgworld.co.uk

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