Hard Brexit or sacrifice UK sovereignty?


Sterling finished last week on the front foot, rallying on Friday after UK Q1 GDP was revised slightly higher. GBP/USD had touched its lowest level since November last week but bounced back above 1.32 on Friday, although it has retreated to around 1.3150 this morning.

Brexit concerns are rearing their heads again after weekend reports that UK PM Theresa May has warned parliament Brexiteers that leeway on negotiations with EU leaders in Brussels is not developing, and that hard-line separatists may soon have to choose between a hard Brexit scenario, an economically punishing outcome, or sacrifice some UK sovereignty in favour of maintaining access to the EU fiscal union.

Event risk this week is limited beyond this morning’s PMI print. Service PMI follows on Wednesday and house price data on Friday.


Having powered above the 95 level earlier in the week, the Dollar Index was brought crashing down on Friday as trade tensions resurfaced. This stemmed from a report that suggested President Trump has been telling his advisors that he wishes to withdraw from the World Trade Organisation – Treasury Secretary Mnuchin later called the story ‘exaggerated’.

Data releases were mixed meanwhile with a downward revision to Q1 GDP followed by a modest beat for core PCE which reached two-percent for the first time in six years. The Dollar Index has begun this week with a modest bid at around 94.9.

On the data front, we await ISM manufacturing later today, factory orders tomorrow, ISM non-manufacturing and ADP on Thursday and the jobs report on Friday.


Earlier today, the AFP news agency reported that the German Interior Minister Seehofer is seeking to resign from his position as well as his seat as the Head of Germany’s Christian Social Union (CSU), Merkel’s Bavarian alliance. This news took the markets off guard and created a sense of panic, as investors remained wary over the German Chancellor Merkel’s future, sending the EUR off the cliff from just below the 1.17 handle.

Euro Zone CPI was out on Friday although prompted minimal reaction as both the headline and core rate were in line with expectations.

This week, we await Euro Zone manufacturing PMI and unemployment data this morning, retails sales tomorrow and service PMI on Thursday.


The Japanese Yen was the main casualty of Friday’s risk rally as USD/JPY hit a two week high at 110.88, stopping short of the elusive 111 handle. The pair is trading around 110.75 this morning after little reaction to mixed Tankan data released overnight.

Still to come this week, we expect possible comments from the Bank of Japan’s Harada on Wednesday plus household spending and wage data on Friday.


Friday’s risk rally weighed on the Swiss Franc which helped to push EUR/CHF back above 1.16, albeit briefly, with the pair falling back to the 1.15 handle this morning.

The Franc has seen a modest bid to start the week as European stocks retreated. Any upside may have been limited however by weak Swiss retail sales data.


The Australian Dollar touched its lowest level against the US Dollar since January 2017 last Wednesday at 0.7323. Analysts were quick to blame the PBOC who set the weakest reference rate since December.

AUD/USD has begun the week on the back foot amid weaker oil prices and soft Chinese macro data. Investors are now looking ahead to Tuesday’s RBA policy meeting – a poll released last week said economists do not expects rates to rise until Q3 2019.

Retail sales data follows on Wednesday alongside the trade balance.


The Canadian Dollar finished last week on the front foot following a modest GDP beat and notable jump in the raw material price index. This followed a one-year high for USD/CAD on Wednesday where cautious remarks from Bank of Canada Governor Poloz provided a weighed.

On the slate this week, we await RBC manufacturing PMI tomorrow ahead of unemployment and trade data on Friday.


Last week’s RBNZ policy decision weighed heavily on the New Zealand Dollar – policymakers seemed to adopt a slightly more dovish stance following the weak GDP data released earlier this month. The Kiwi hit its lowest level versus the US Dollar since June 2016 on Friday at 0.6736.

The Kiwi has lost some minor ground this morning after soft New Zealand Treasury indicators. This week could prove a quieter one with only the GDT auction tomorrow and the ANZ commodity price index on Wednesday.


The Riksbank meet tomorrow against the backdrop of a weakening currency as investors continue to fret over the possibility of an EU referendum. Data was also less than supportive with retail sales falling short of expectations on Wednesday.

EUR/SEK hit its highest level since May 9th this morning at 10.2068 with the Krona losing ground after a soft Swedish PMI print. Looking ahead, we await Service PMI on Wednesday and industrial production on Thursday.


The Norwegian Krone gave back some of its recent gains last week as it received support from hawkish central bank rhetoric. Data releases provided a brief boost to the Krone on Friday with encouraging prints for retail sales and unemployment.

EUR/NOK has crept up to a fresh three-week high this morning at 9.5367.


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