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May’s progress limited to the removal of £65 fee for EU citizens

STERLING

With no hope of cross-party talks, Theresa May now needs to get the EU to rewrite the Irish backstop, something that the bloc has repeatedly refused to do.

Yesterday’s statement to the Commons showed that there has been no substantial progress since last week’s historic vote, where the PM lost by a landslide 230 votes. With no concrete movement either way, markets are struggling for direction. MP’s are due to vote on a modified deal next Tuesday, although this could well be pushed back to February as few details about the changes to the deal have been made.

Retail sales for December missed expectations at the end of last week, coming in at -0.9% against expectations of -0.8%. Christmas was an extremely challenging period for retailers, with many people opting to bring Christmas purchases forward to November to take advantage of Black Friday offers.

Looking ahead, labour market indicators are out tomorrow followed by CBI data on Thursday.

US DOLLAR

The Dollar Index is little changed having hit a two-week high on Friday at 96.40. Investors managed to look through a flurry of cautious FOMC commentary while macro releases were limited by the ongoing government shutdown which looks set to drag on this week.

Demand for the Dollar was evident as US-China trade negotiations appeared to have made little progress (besides a WSJ sources story that was later denied).

Manufacturing and service PMI figures due on Thursday will be the main data focus this week.

EURO

The Euro softened last week having dropped on Monday following weaker-than-expected Euro Zone industrial production data. ECB President Mario Draghi added to the downbeat tone as he said recent economic developments had been weaker-than-expected and argued that a significant amount of stimulus is still needed.

EUR/USD reached a fresh two-week low on Friday at 1.1353 with investors now looking ahead to the ECB policy decision on Thursday. Also, this week, Euro Zone consumer confidence data is due tomorrow followed by PMI on Thursday.

JAPANESE YEN

USD/JPY came within touching distance of the 110 handle on Friday for the first time since December 31st as safe-haven assets were dented by a broad improvement in risk sentiment. Weaker than expected domestic CPI data also provided a weight although are unlikely to result in any major policy shifts as Wednesday’s Bank of Japan meeting.

Manufacturing data on Friday is the only notable release left this week.

AUSTRALIAN DOLLAR

The Australian Dollar saw a modest drop versus the US Dollar last week as US-China trade relations appeared to have made little progress. Talk of a possible tariff suspension from the WSJ was swiftly played down by US officials. AUD/USD has inched higher yesterday after Chinese GDP data met expectations overnight.

Employment figures are due on Thursday.

NEW ZEALAND DOLLAR

The New Zealand Dollar finished last week as one of the weaker G10 currencies having begun the week on the back foot after weak-than-expected Chinese trade data.

Looking ahead, Q4 CPI figures are out tomorrow followed by credit card spending on Friday.

CANADIAN DOLLAR

USD/CAD moved above 1.33 last Thursday for the first time since January 8th but failed to sustain the move as the Canadian Dollar found support from rising oil prices and Friday’s stronger-than-expected CPI data.

Retail sales are due tomorrow and budget data on Friday.

SWEDISH KRONA

Swedish CPIF data surprised to the upside last Monday but support to the Swedish Krona proved brief with EUR/SEK up to a fresh two week high on Thursday at 10.2955 before easing back.

Comments from Riksbank Deputy Governor Skinglsey may have played their part as he played down the data and argued that slight deviations are not a problem.

Unemployment figures are out on Thursday followed by PPI and retail sales on Friday.

NORWEGIAN KRONE

Domestic impulses were limited for the Norwegian Krone last week although the stronger-than-expected CPI data released in the week before continues to provide support. Rising oil prices also continue to underpin the currency as US crude futures touched $54 a barrel on Friday. Ranges in the major pairs have been relatively tight yet EUR/NOK did edge down to a fresh five-week low on Friday at 9.7067.

Unemployment figures are out on Thursday followed by industrial confidence on Friday.

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