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State of Union Address Left Traders Empty Handed

Unsurprisingly we saw another muted session in Asia amid Chinese New Year celebrations. The only notable action in the region came from the Australian dollar. The Aussie dollar tumbled as the RBA opened the door to a potential rate cut going forward after months of flogging a potential rise. The Aussie dollar dived 1%.

Investors looking towards the State of the Union address for a fresh trading catalyst were left disappointed. The US dollar remained steady following President Trump’s address. Whilst the President touched on Chinese trade relations and the budget there was nothing new for traders to sink their teeth into.

The annual speech which lays out the President’s priorities for the year ahead, saw Trump focus on illegal immigration and his plans for the wall. Those that had been hoping that Trump would offer fresh trade news with China were left empty handed. Concrete evidence of real progress in US – China trade talks is still lacking. Whilst there is lots of positive talk the market wants to see something more concrete now and which explains why we had such a subdued reaction.

Next Steps with China

Senior US officials will now go to Beijing to continue talks next week and push for a deal on US IP. With the March 2 deadline drawing ever closer we expect the market to become increasingly sensitive to any lack of solid progress.

BoE up next

European futures and US futures are pointing to a slightly lower start. Whilst we knew this week was going to be a little dull given the Chinese New Year, it is turning out to be drearier than expected. With the State of the Union address behind us, the BoE policy announcement is the next big event. However, given Brexit, we can’t expect anything more than 'wait and see 'from Carney & Co.

Pound recovering in early trade

The pound is recovering in early trade after falling heavily on Tuesday. Brexit negatively impacting on the UK economy, combined with a distinct lack of progress from Theresa May as she continues to go in circles sent the pound to $1.2927 in the previous session. Whilst the DUP has shown some flexibility towards Theresa May’s backstop plan, there are still many Eurosceptic hardliners in her party. Theresa May will head to Brussels tomorrow to try to secure further concessions, but the market has as good as given up on this tactic. Instead hopes of Brexit being delayed are once again doing the rounds and lifting the pound.

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