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POUND STERLING (GBP)
Firm UK construction data had little impact as political events dominated during Tuesday. Sterling pushed sharply higher following a European Court of Justice Judgement that the UK could unilaterally revoke Article 50 which eased fears over a ‘no deal’ outcome. Government defeats over legal advice, however, helped trigger a sharp reversal during a passionate House of Commons Brexit debate and no sign of consensus as parliament attempted to assert greater control. GBP/EUR reversed gains to trade little changed near 1.1200 while GBP/USD briefly hit 2018 lows at 1.2660 before a slight recovery.
The Euro initially took advantage of on-going dollar vulnerability to push higher and EUR/USD moved to 10-day highs above 1.1400. The Euro was unable to sustain the gains as unease surrounding the European political outlook again sapped confidence, especially with fresh doubts surrounding US trade policies and potential tariffs on EU car exports. EUR/USD gradually declined to lows near 1.1320 as the Swiss franc secured renewed defensive support. Markets were waiting for fresh evidence on ECB policies with EUR/USD held near 1.1330 on Wednesday as global volatility increased.
The dollar retreated again early on Tuesday before staging a notable comeback. There were further important moves in bonds with 10-year yields at fresh 3-month lows despite hawkish rhetoric from New York Fed’s Williams. US equities slumped with a 3.8% decline in the Nasdaq index which reinforced unease surrounding growth trends. The potential adverse dollar impact was offset by defensive demand, especially as comments from President Trump triggered fresh unease over US-China trade relations. USD/JPY found support near 112.60 and rallied to 113.00 on wider net US gains.
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