GBP finally gets some relief after conciliatory PM May speech

Further USD retracement as Trump comments on USD and modest risk concerns weigh.

A busy day for GBP, but one which has finally given some near-term relief at the very least, after weekend reports suggested PM May speech today was pointing to a ‘hard’ Brexit.  This has saw the Cable rate dipping under 1.2000 again, but since then we have seen a steady recovery into the mid 1.2000’s, but ahead of the scheduled address, cautious gains into the 1.2100’s followed. The early part of Theresa May’s speech focused on UK willingness to continue working alongside Europe, whilst respecting the domestic electorate and their decision to leave the EU. She spoke of compromise on both sides of the negotiations - access to the single market and EU budget contributions – but a key driver of positive sentiment lay with the parliamentary approval on the eventual Brexit deal. Plenty of risk ahead, but for now, the GBP spot rate looks set to test 2017 highs above 1.2425, if not higher. EUR/GBP had topped out just above .8850 in early Monday trade, but has gone on to take out a series of support points to trade the lower half of the .8600’s. Adding to the Cable move however was another broad based weakening in the USD. UST yields have been under pressure from a growing sense of risk aversion, but the USD has overrun this to a larger degree as comments from Trump and his advisors that the USD is ‘too strong’ also seen recent longs trimmed. USD/JPY has tested below 113.00 and EUR/USD above 1.0700, with more weakness likely ahead of Friday’s inauguration. The president elect needs to address fiscal policy intent in a little more detail in order to restore market confidence, and despite the prospect of at least 2 Fed rate hikes through 2017, Treasuries could face some fresh upside pressure if equities take a turn for the worse. This could impact on the commodity currencies, which have managed to claw out some new highs against the greenback, with AUD tipping .7560, NZD .7200 and the CAD retesting 1.3000.  The GDT auctions saw WMP’s -0.1%, but to little effect on NZD. UK inflation was modestly above expectations, but focus was clearly elsewhere.