Brexit Negotiations Begin

Interest rate focus

The week ended with a renewed focus on the shape of the respective interest rate curves from the US, after the FOMC raised rates by 25 basis points, and the BOE surprised with a 5-3 vote vs 7-1 expected. The FED move was expected and the Dollar move was tame, the BoE move was not and GBP picked up as a consequence, albeit somewhat temporarily. 

There is an interesting debate going on for those macroeconomists out there over the value of tightening in the US with the general absence of inflation and also in the UK which certainly has inflation but that inflation is seemingly imported (via weak GBP) rather than wage inflation and with the Brexit negotiations due to start today, one may question if The Bank really needs to apply the brakes… 

Brexit press conference due at 5pm

This week is set to be another Intriguing chapter with official Brexit negotiations starting today. In the absence of a U-turn the UK position of wanting free trade and border controls without being part of the customs union is unlikely to meet a welcoming committee and as such Sterling may remain range-bound for now. 

The week ahead

Sterling remains vulnerable to domestic political instability – with the weekend press focusing on the existential threat already to this government. The Euro is riding a wave on the Macron majority and being relatively light on data this week suggests the Euro may even start looking to book its August gîte.

From the States the week is also light on major data with the highlight being PMIs so instead the market is trying to figure out the FOMC strategy with recent hawkish tone.