Global equity markets dropped across the board yesterday, led by US technology stocks which suffered following news of a data breach at Facebook. In FX, GBP rallied on the back of progress made on the Brexit Withdrawal Treaty and USD gained against the EUR and the JPY ahead of tomorrow’s FOMC meeting.
The RBA minutes released overnight revealed little new information on the future path of monetary policy and fluctuations in AUDUSD were instead driven by a fall in iron ore prices and headlines on the possible implementation of higher US tariffs on Chinese goods.
The UK and the EU reached an agreement for a 21-month Brexit transition period which prompted a rally in GBPUSD up to 1.4088. While the Irish border remains a sticking point, Member States are expected to provisionally sign off on the deal during this Friday’s European Council Summit.
GBPUSD short-term support comes in at 1.4000 ahead of 1.3880 with resistance at 1.4100 and 1.4150. In EURGBP, support comes in around the 0.8685-0.8730 area.
Focus this morning will be on the UK February CPI print at 9.30 which may create short-term volatility in GBP. Barclays Research expects headline CPI to come in at 2.7% y/y which is slightly lower than consensus expectations (2.8% y/y).
Trade protectionism remains a key driver of market risk after reports suggested that Trump will apply $60bn worth of tariffs on Chinese goods (Washington Post).
Barclays Research expect the US to recommend “… a menu of options for the US to retaliate against Chinese “unfair” trade practices under Section 301 of the Trade Act of 1974 in the coming months…”.