Brexit war of words resumes; US markets on holiday

Today’s macro highlights:

  • EUR - Markit Eurozone Manufacturing PMI (August)
  • GBP - Markit UK Manufacturing PMI (August)

The US Dollar strengthened on Friday after the US failed to progress trade talks with Canada, instead focusing its attention on ties with Mexico. We also saw some slightly stronger than forecast US economic data released, with both Michigan consumer sentiment and the Chicago PMI prints coming in ahead of expectations, in turn helping bolster the dollar. With many US markets closed today for the Labor Day holiday, direction from across the Atlantic is likely to be harder to find. However with the UK parliament set to resume this week - and with Brexit high on the agenda - the inevitable war of words has already started. With opposing factions looking no closer to finding compromise, Sterling may well find itself under renewed pressure in the days ahead.

9am BST sees the release of the Eurozone Manufacturing PMI data and this is expected to remain static from last month’s reading. Markets would arguably be content with that outcome, especially given the deteriorating global trade situation. It would also add weight to the idea that the ECB can deliver on its projected path of monetary policy normalisation.

At 9.30am BST we have the corresponding UK Manufacturing PMI print for August and again little change is expected here. Consensus estimates are eyeing a slight decline, but given the economic uncertainty faced by the UK right now with Brexit looming, a modest drop is unlikely to cause much concern in the market. Unfortunately with the stand-off between Michel Barnier, Theresa May and Boris Johnson, an overshoot is unlikely to deliver much of a lasting boost for Sterling, either. 

The economic calendar will pick up as the week progresses, not least as the US returns from the holiday weekend tomorrow, but it’s inevitable that Brexit will remain front of mind. As a quick recap, Theresa May is clinging to the idea that the plan agreed by her cabinet ministers at Chequers will be used to engineer the UK’s split from the trading bloc. Chief EU negotiator Michel Barnier is adamant that the UK cannot be in a position to pick and choose which elements of EU rules it wants to adhere to, as others would follow suite and the entire project would collapse. Boris Johnson claims that the by adopting the Chequers plan, the government has accepted defeat already and will be handing over billions of pounds of taxpayers money for no benefit whatsoever. The clock is ticking here and the idea that an agreement could be reached by the time EU leaders meet next month is fading fast. However, the March 29th 2019 deadline for Brexit appears to be set in stone. A lack of progress will do nothing to lend support to the Pound.

GBP/USD

After last Wednesday’s optimism off the back of comments by Michel Barnier, the Pound has now lost more than a cent against the Dollar. Renewed Brexit uncertainty is likely to keep downside pressure on here.

EUR/USD

After two consecutive days of losses, there’s some buying already being seen on the pair following the weekend break. Upbeat economic data today may help extend these gains although the overhang of US trade policy has the potential to limit any upside.

GBP/EUR

After rallying two cents in the latter part of last week, selling pressure has resumed on the cross. The market gapped lower as trading started in Asia overnight and unless we see another olive branch from the EU over Brexit, it’s easy to see a return to recent lows.