Brexit back in focus after long weekend break

Today's news headlines:

• 'May returns to face Brexit crisis as leadership pressure grows’. Domestic political risk is likely to increase in the days and weeks ahead, as the Conservative party trail in opinion polls and face a drubbing in local elections next week. Tory activists want to remove May from leadership, but who could replace her and still command a parliamentary majority? (Bloomberg)
• 'Dollar broadly higher in thin post-holiday trade; euro, Aussie dip’. Belief that the US economy is firming continues to bolster the US Dollar.  Data released this week should provide a clearer indication of any upcoming shifts in Fed policy. (Reuters)

Brexit

After a short break Politicians return to work today, as pressure builds to conclude cross-party Brexit talks. Theresa May’s failure to deliver on this so far - despite three weeks of negotiation with Labour - is reportedly causing concern amongst Conservative party activists who are once again plotting her removal. The challenge however is ensuring any replacement can garner the support of the Democratic Unionist Party, to avoid the risk of triggering a general election. Quite rightly, Conservatives are anxious about upcoming local elections and European polls, given the lack of progress with the Brexit issue. 

Dollar gains

The US Dollar Index is making some modest gains coming out of the long weekend break, but further upside may be capped as a result of rising oil prices. Expectations are that US Corporate earnings will impress this week, with Friday’s Q1 GDP figure also in focus. Markets are eagerly awaiting fresh data points to assess the Fed’s current policy path and anticipate the next tac in course.

GBP/USD

A solid outlook for the US economy set against the ever-present Brexit debate, has resulted in the Pound selling to the 1.30 support level. Unless there’s a quick Brexit breakthrough, gains are unlikely to materialise.

EUR/USD

The release of worse-than-expected Eurozone PMI data on Thursday resulted in Euro sell-off. The pair has been trading broadly sideways since, although data releases due this week have the potential to tell a slightly more optimistic story about the state of the Eurozone economy.

GBP/EUR

Trade-weighted Sterling value has reached the bottom of a two-month range, while the EUR has remained somewhat more buoyant despite the unflattering PMI releases.