US Dollar gains as investors unwind bearish FOMC bets

We expect this afternoon’s non-manufacturing PMI from ISM to be similarly dismissed by the market, with flows instead likely to be driven more by central bank communications. A host of central bank’s will be announcing their latest policy decisions this week, including the Bank of England, Reserve Bank of Australian and Reserve Bank of India.

Pound struggles under weight of Brexit uncertainty

Sterling managed to eke out some gains against the US Dollar on Monday afternoon, albeit only briefly, on reports that goods arriving into the UK could avoid border checks in the event of a ‘no deal’ Brexit.

As has been the case of late, gains for the Pound proved very short lived, with investors reluctant to buy the UK currency ahead of the next parliamentary vote on 14th February. Again, the vote looks very unlikely to pass although, as we mentioned last week, a much narrower margin of defeat for Theresa May open up the possibility a last minute deal being forced force government prior to the 29th March EU exit date. That being said, our base case remains a delay to Article 50.

Next up for the Pound will be this morning’s services PMI at 9:30 UK time. We think we would need to see a much stronger number than consensus for the Pound to sustain any sort of rally, given Brexit uncertainty continues to pressure the currency lower.

Euro to be driven by events elsewhere

This morning’s Eurozone PMIs will arguably be the main economic data releases out today. These numbers are prone to revisions, with any additional signs of weakness likely to drag the Euro lower this morning.

Aside from today’s PMIs, this week looks likely to be a quiet one in the Euro-area and we expect the common currency to be driven largely by events elsewhere.