Good morning,

AUD: Dollar soars on RBA statement

Overnight we saw the RBA leave their cash rate unchanged at 1.5%. More importantly though was the deliberate avoidance of dovish commentary, allowing the dollar to soar against its currency peers.They expect to see inflation tick up over the next couple of years and acknowledged the usual trade tensions carrying effect into Chinese economic growth.

GBP: UK PMI and stalling Pound

UK PMI is due out at 09:30, which will be the first glimpse into economic performance for 2019. Consensus sits at 51.0 vs 51.2 previous. It would be erroneous to read too much into this release as the market is still dominated by wider political concerns.

It would feel fair to say that the majority of the Brexit talks appear to be stalling, and the optimism that a no-deal would be contractually removed from the negotiation is slowly fading, much like January crash diets. Jacob Rees-Mogg snapped up the opportunity yesterday morning to remind his supporters that leaving the EU with no-deal would be the “rational decision”. Several prominent EU officials have again made remarks that they are not prepared to re-open the Brexit withdrawal agreement. GBPUSD 5% bullish rally from 11th December is now deflating quickly.

There is some hope placed on the Malthouse Compromise which is floating around parliament (MP Kit Malthouse) and gaining traction with both sides of the Brexit debate. Plan A requests a one year extension to the transition period from 2020 to 2021 and would seek to amend the backstop to a free-trade agreement with “proven solutions” to dodge the border checks. Plan B covers off a no-deal result and would push for the transitional period to be extended further to lessen the economic impacts of a harsh  exit – this would require the EU to budge and allow further re-negotiations.

USD: PMI and Chinese New Year

Donald Trump had dinner with the Fed’s Jerome Powell last night, in which they discussed the recent economic developments (what could possibly go wrong?). Bloomberg reported that Powell stayed tight lipped on expectations for monetary strategy, despite Trump’s previous disappointment and frustration with their pre-Christmas policy which had prompted yesterday’s dinner.

US PMI is out at 15:00GMT and the general sceptixism on waning US economic performance from Q4 rolling into Q1 2019 will remain.

Have a great day.