Working on the assumption of no deal
Unbridled optimism in Downing Street has yet to infect the currency. The Boris bounce that supported sterling on Wednesday and Thursday fizzled out on Friday and the pound resumed its position at the back of the major currency field, losing an average of 0.3% on the day.
At the core of its troubles is the combative no-deal stance adopted by the government. For the avoidance of doubt, minister Michael Gove confirmed at the weekend that he is "working on the assumption" of no deal and will head a special committee to plan for that outcome. Investors have been forced to take seriously the idea that the Prime Minister intends to crash Britain out of the EU in three months' time, whatever the consequences.
At the weekend Carlos Tavares, the head of PSA, said he would end production of the Vauxhall/Opel Astra in Britain "if the conditions are bad and I cannot make it profitable". Separately, the CBI reported that neither the UK nor the EU is prepared for a no-deal Brexit and that "even with mitigation, no fewer than 23 of 27 areas of the UK economy would experience disruption".
ECB rate cut but not yet
On Thursday the European Central Bank sent the euro hither and yon when it kept monetary policy unchanged while hinting at relaxation in the future. Its tone was less dovish than investors had expected and the euro was eventually one of the day's top performers.
At his press conference, ECB president Mario Draghi said "this outlook is getting worse and worse", especially in manufacturing, and he called on governments to play their part with fiscal policy. The interpretation of Bloomberg analysts was that "taken together, the wording of today's decision and press conference strengthen our conviction that the ECB will deliver a meaningful dose of stimulus in September".
The highest-profile data at the end of the week came from the United States. All the components of durable goods orders beat forecast. Nondefense capital goods orders excl. aircraft increased by 1.9% on the month, smashing the 0.2% predicted by analysts. Friday's gross domestic product data for the second quarter also exceeded expectations, though annualised growth of 2.1% was well below the 3.1% achieved in Q1.
BoJ and Fed decisions
There are no heavyweight economic statistics on today's agenda. Japan has already reported that retail sales were flat in June. The Bank of England's lending and mortgage approvals data come out this morning and the Dallas Fed's manufacturing index after lunch.
Tonight the Bank of Japan is expected to commit to keeping interest rates "extremely low" until next year. The only question is whether it will extend that period beyond its current horizon of spring 2020. On Wednesday, the Federal Reserve to likely to cut a quarter of a percentage point off its Funds Rate. There is little chance of any policy adjustment by the Bank of England on Thursday.
Theoretically the most important item on this week's agenda is Friday's US employment report. However, the Fed will by than already have made its move, so the impact of nonfarm payrolls might be softened.