Good morning,

GBP: Poor politics, poor data

Sterling slipped yesterday as Q4 GDP slipped to a preliminary reading of 0.2%, a decline that would have been a lot greater if the British consumer and UK government spending hadn’t rescued the situation. Both industrial and manufacturing production numbers slumped and imports rose as businesses stockpiled goods and slowed investment, a situation that is unlikely to change until a Brexit deal is agreed.

Theresa May will stand up in front of the Commons today to flesh out the new developments to her deal and the quest for alternative arrangements to the Northern Irish backstop. It will be a short statement. We will be looking for the PM to grant parliament the right to another ‘meaningful vote’ on her deal by February 27th.

Michel Barnier summed up his meeting with Brexit Secretary Barclay by noting that “It’s clear from our side that we’re not going to reopen the Withdrawal Agreement, but we will continue our discussion in the coming days.”

It has long felt like we are going in circles on Brexit but those circles are ever decreasing as we get closer to the end of the Article 50 period. For now, we have to remain reticent to call sterling higher from here with such a combination of weak data and political intransigence.

USD: Risk helped by trade deal promises

Asian equities and riskier currencies have run higher at the expense of the US dollar overnight following warm words from President Donald Trump on the prospects of a trade deal between the US and China. Trump noted yesterday that great deals will soon be a reality with an administration official hinting that a meeting between Donald Trump and Chinese President Xi would occur “soon”.

NZD: Statement key to kiwi prospects

The Reserve Bank of New Zealand is expected to hold policy rates unchanged tonight and, much like the comments from the Reserve Bank of Australia last week, there is a real chance that the central bank’s Monetary Policy Statement is a little more dovish than may be widely expected given the global growth story and New Zealand’s exposure to those headwinds.

The NZD is one currency that certainly reacts to the pronunciations of its central bank and so this may be the most important session for the kiwi dollar this month.

Have a great day.