Sterling remains under pressure in early trading undermined by Brexit comments as markets speculate that the UK will trigger article 16 which allows either side to take unilateral action if they deem the deal governing post-Brexit trade is having a strongly negative impact on their interests. Ireland’s foreign minister said on Sunday that the British government was not negotiating in good faith and there is an increasing view across Europe that the UK is seeking to collapse negotiations by “deliberately asking for what they know they can’t get”. Added to this, European Vice-president Maros Sefcovic has warned that there will be “serious consequences” if Britain goes ahead with their threat. Bank of England governor Andrew Bailey also undermined sentiment around the pound after he told Bloomberg television that his remarks on inflation prior to last week’s meeting were conditional. Bailey is due to speak later today.
After a decline last week, EUR/USD is relatively steady in early trading. The monetary policy divergence between the Federal Reserve Bank and the European Central Bank appears to favour the dollar for now as ECB policymakers continue to remind markets that they are not looking to hike rates. Earlier this morning, ECB chief economist Philip Lane noted that although inflation was unexpectedly high at the moment, it was not a sign of a chronic situation and he believed there were strong reasons for it to fall next year. European Finance ministers will meet today to discuss the surge in consumer prices and changes they would like to make to the bloc’s budget rules to support investment.
The dollar has made a steady start to the week but is trading below Friday’s highs when the dollar index set a 2021 high after Nonfarm payrolls rose by 531,000 in October, surpassing the market expectation of a 425,000 rise. The jobs report also revealed rising hourly wages and many economists believe it won’t be long before the Federal Reserve Bank starts to comment on tightening monetary policy. With this mind, markets will focus on speeches this afternoon by Chairman Jerome Powell and Vice- chairman Richard Clarida.
15:30 US Fed’s Powell speech 17:00 UK BOE’s Governor Bailey speech 17:00 US Fed’s VC Clarida Speech