Crucial Week for Theresa May

Last week saw one-step-forward, two-steps-back in the Brexit process. Theresa May has managed to keep control of the Brexit process by a very small margin and the ability to extend article 50. The next step will be to see what, if any extension the European Union is willing to grant, and what the cost of the extension will be.

Theresa May will again this week bring her deal in front of parliament in an attempt to get it passed – tomorrow should be an interesting day. Rumours in the press over the weekend have circled around Euro-sceptic Tory MP’s agreeing to vote for the deal if Theresa May commits to stand down as PM.

From a sterling perspective, tomorrow’s vote should give the pound direction in the short term and the Bank of England’s interest rate announcement later in the week will be in focus. If the PM’s deal is passed, the BoE may start talking about interest rate hikes which will strengthen the currency. However, if the PM is not third time lucky – we may be heading for no deal.

Euro

The Euro remains stable after a good end to last week for the single currency. The euro managed to make it’s way back above 1.1300 against the US Dollar as ‘risk on’ sentiment saw traders move out of the dollar and into riskier currencies which produce more yield, such as the Aussie and Kiwi dollars which are stronger as a result.

The focus this week for the euro will be commentary from the 27 member states on the Brexit extension and the German ZEW sentiment survey.

US Dollar

The US Dollar has given up ground across a basket of currencies in the past few weeks as some worse than expected economic data releases and the Fed's patient tone has driven traders and investors to look into other currencies to hold as a source if yield. President Trump's commentary on interest rates seems to be having an impact on the currency. To drive exports, Trump would like the dollar to be weaker.

The focus for the Dollar will be the FOMC interest rate announcement on Wednesday – any change in language will have an impact on the dollar.

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