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Warning: Sterling can go up as well as down

Brexit rumours electrify the pound

Sterling put in a storming performance on Tuesday, adding an average of 0.9% against the other ten most actively-traded currencies. The rally was apparently sparked by a rumour that negotiations with Brussels will give Theresa May a modified deal that she can sell to parliament.

Not everyone subscribes to that idea. A notable exception is the EC president himself, Jean-Claude Juncker. He said yesterday "we will have friendly talks tomorrow but I don't expect a breakthrough".  

Investors did not care. There was a rumour to trade and, true or not, it was taking the pound higher. Sterling added two yen, one and a half US cents, one Swiss cent and one euro cent. Its smallest gains were of 0.5% each against the Australian dollar and South African rand and there were no losses. The pound is an average of 2.3% above its levels at the beginning of the year, beaten only by the Canadian dollar

Decent jobs

A useful set of UK employment data yesterday morning arguably set the scene for sterling's rise but would not have been sufficient on its own to justify the protracted rally. Too many of the numbers were unchanged on the month.

Unemployment was steady at 4.0% and earnings, both with and without bonuses, continued to increase at an annual pace of 3.4%. The 14.2k net increase in the number of jobseekers was not far enough above forecast to be a worry. As for the rest of 

Tuesday's ecostats, none could be described as crucial. Italian industrial orders and sales were predictably horrid, with monthly declines of 1.8% and 3.5%. ZEW's surveys showed economic sentiment improving in Germany and Euroland but both readings were still negative.  

In the States the housing market index climbed four points to 62 but the more curious story over there related to the trade talks with China.  Apparently the US administration wants Beijing to stabilise the value of the yuan against the dollar. The request looks bizarre, given that the yuan has strengthened by 3.4% over the last three months. Logically, a weaker dollar is good for American trade.  

More dovishness?

There are two frontline opportunities for central bank dovishness today. The first will be a speech from European Central Bank chief economist Peter Praet, the second comes this evening with the minutes of the Federal Open Market Committee.

Mr Praet and a couple of his colleagues have said recently that the economic slowdown in Europe and persistently low inflation might justify further stimulus, in the form of cash injections by the ECB or an extension to the period of ultra-low interest rates. In Washington the Fed positively reeks of patience, and that could well be evident in the FOMC minutes.

Tonight's Australian employment data are the only really important ecostats on the agenda. By the time they come out it is possible that the media will have something to say about the success of Theresa May's Brussels jaunt.

GBP boosted by Brexit bargain breeze

GBP boosted by Brexit bargain breeze

AUD braced for Australian employment data

AUD braced for Australian employment data

EUR steady against Swiss franc

EUR steady against Swiss franc

USD awaits FOMC minutes

USD awaits FOMC minutes

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