FX Snap: Brexit Bill Defeated Again, China Prints Trade Deficit

(GBP/USD) remains exposed to further downside risks & GBP remains weighed by another setback faced by the UK PM Theresa May in her effort to trigger the Article 50, after the Brexit Bill failed to pass through the House of Lords for the second time yesterday. The Brexit Bill defeat threatens the UK PM May’s plans to initiate the Brexit process this month, which will continue to undermine the sentiment around the GBP.

Following a long debate, the House of Lords voted by 366 to 268 yesterday in favor of changing May's draft Brexit law to give Parliament the ability to reopen negotiations if legislators decide the terms of the agreement aren't good enough.

Later today, all eyes will remain on the UK Annual Budget release, with the UK finance minister Hammond expected to provide an upbeat assessment of the economy. Also, the US ADP jobs report will be closely eyed for further momentum on the pair.

With the public finances proving stronger in recent months than expected, and defying forecasts of a post-EU referendum downturn, economists say the chancellor has more room for manoeuvre than he might have expected at the time of last November's Autumn Statement.

He has already announced £320m in funding for new free schools and the expansion of existing grammar schools, while the science budget is also expected to be a winner, with funding for electric vehicles, robotics and artificial intelligence.

The Treasury said Mr Hammond - who will set out his tax and spending plans for the year ahead at 12.30 GMT - would give an "upbeat assessment" of the UK's economic prospects and offer a "positive backdrop ahead of the start of new chapter for the country outside of the EU".

GBP/EUR seems to be getting political and with the recent French polls evening out while Brexit concerns grip the market yet again, the euro is consolidating while sterling is falling helped along by yield gap differentials vs the dollar. However, we have the ECB this week and a dovish (negative) bias is expected which could dampen the spirit of a stronger EUR this week.

GBP/USD might come under more pressure this pm as the US ADP employment report will give an indication of Fridays employment numbers – only a VERY weak data print will knock this month’s rate hike off-course.

AUD was boosted overnight by a research note out of Goldman estimating 60% chance of an RBA rate hike as soon as November, but came in on release of disappointing China trade data. In CNY terms, trade fell into deficit for the first time in 3 years, with Exports undershooting at Y/Y 4.2% v 14.6%e and Imports surging 44.7% v 23.1%e.

Some of the deviation will likely be attributed to the timing of Lunar New Year coming in late Jan this year vs early Feb last year. Also of note in China, Foreign Min Wang said Beijing is working to expand cooperation with US while also calling on Washington to back away from THAAD missile system in South Korea and for North Korea to stop its nuclear development.