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February

Sterling rebounds as a deal on Brexit might just happen

Published: Friday 08 February 2019

  • German trade balance a pleasant surprise
  • Reserve Bank of Australia drops growth forecasts and AUD weakens
​​​​​​By David Johnson

After a poor early start yesterday, Sterling found its feet and rallied towards the close of play. Traders are clearly starting to believe a deal might be possible before the end of March on that goddam Brexit thing and that would clearly be good for the Pound and maybe even the UK economy. The fact that the Bank of England did the obvious thing and left the UK base rate on hold was unperturbing and there was little of substance other than that in Thursday’s data diary. There is little to focus on today other than any developments in the talks between the UK Prime Minister and the EU negotiators. We shall see whether traders continue to anticipate a deal or whether everyone involved is pushing it to the wire. If they have any negotiating skills at all, that’s exactly what they’ll do. To ‘B’ or not to ‘B’, that is the question.
 
Australian Dollar nosedives
 
Overnight, we had the monetary policy statement from the Reserve Bank of Australia. They dramatically downgraded their economic growth forecasts and that sent the Australian Dollar into a tailspin. The GBPAUD rate shot up into the 1.83 region. Good news for AUD buyers, of course, and that will help Australia’s exporters. The RBA is very worried about the slowdown in China (Australia’s Number One export market) and an 8% correction in the housing market is also on their radar. However, their revised growth forecast puts it at 2.5% and that is pretty healthy by EU standards and for anyone moving to Australia, the exchange rate and the housing market are making their lives easier right now.  A ‘double bubble boost’, if you will.
 
German trade balance a pleasant surprise
 
We also had Germany’s trade balance figures today. With the dire manufacturing and industrial data we saw earlier in the week, markets assumed that Germany’s trade surplus would have contracted somewhat, raising concerns for Chancellor Merkel. It is little wonder she is pressing for a deal with the UK to secure access to the UK’s markets for German goods. Surprisingly, the figures came in well above expectations, with growth in imports and exports and a rise of 1.5% on last month, surpassing the 0.2 percent forecasts. The trade surplus is now 19.4 billion Euros, rising from a figure of 18.4 billion the previous month.
 
Canadian employment data expected later
 
This afternoon brings Canadian employment data, which we believe will show a small scale increase in the unemployment rate. We are also likely to see a slowdown in new housing starts. These two pieces of data are likely to combine to weaken the Canadian Dollar to some extent. Obviously, if the forecasts are too pessimistic, the CAD will regain some strength, but the threat of the Chinese slowdown and its impact on the commodity markets is keeping the pressure on the Canadian Dollar due to Canada’s reliance on commodity exports.
 
Filthy
 
And I forgot to mention this story from earlier in the week. It has a lot of odd elements that make it worth a mention. A man was arrested in Harlem, NY, for throwing a brick through the window of an ‘adult’ store and not for the reasons you might suspect. He was incensed, it seems, by the window display which depicted a mannequin of Barack Obama dressed as a prince with a mannequin of Donald Trump dressed as a princess wearing a baseball cap with ‘make America great again’ as the logo. The attacker then dragged the Obama mannequin out and threw it to the ground. All that anger over a dummy and what the hell is an adult store doing displaying such filth?
Short Jokes
 
I knew a soldier once who had survived a mustard gas attack and an assault with pepper spray. Yes, he was a seasoned veteran.
 
Two whales go into a bar. One says, “Whoooeeeeaaarrrrooo” and the other one says, “Go home, Kev, you’re drunk.”
 
I used to have an addiction to shampoo and soap, but I’ve been clean for two years now.
 
I’ve got this joke about déjà vu. Oh you’ve already heard it, have you?
 
So you already know about this special insole I’ve got in my shoe to sort out my bad back. I stand corrected.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
CAD 13:15 Canada: Housing Starts 213k 206k
CAD 13:30 Canada: Employment Change 9.3k 6.5k
CAD 13:30 Canada: Unemployment Rate 5.6% 5.7%

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news