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Will Brexit ever happen?

Will Brexit ever happen?

GBP
Political factors continued to have an important impact on Friday and generally had a negative effect on Sterling as Brexit speculation persisted. EU Chief Negotiator Barnier stated that the latest UK backstop proposal raised more questions than answers and there was still much to negotiate. There was also some disappointment that the UK government’s Brexit White Paper would not be released ahead of the late-June EU Summit, maintaining fears over the lack of progress while Prime Minister May’s position remained extremely vulnerable due to internal party divisions.

Sterling lost ground, although there was support above 1.3400 against the Dollar while the Euro hit resistance close to the 1.1360. The UK inflation, labour-market and retail sales releases will be important this week given the potential impact on interest rate expectations. Political factors will also be important given that the UK government faces key Brexit votes in parliament.

USD

On a weekly basis, the US currency registered the sharpest decline since late March.

The squeeze lower in the index comes alongside a rebound in yields of the key US 10-year note to the 2.97% neighbourhood following a test of sub-2.90% levels in past hours, all in a context of increasing risk-on sentiment.

After six consecutive weekly declines, the CFTC data recorded a small increase in the overall short, speculative Dollar positioning which suggests momentum for a firmer US currency could be fading slightly.

In the data space, inflation figures tracked by the CPI will be published tomorrow, although the salient event will be the FOMC meeting on Wednesday, where the Committee is expected to hike rates by 25 bps.

EUR

The Euro drifted lower in Europe on Friday with weaker-than-expected German industrial production and trade data undermining sentiment, although the lower trade surplus was driven by higher imports which curbed potential selling.

Italian parliamentary leader Di Maio called on the EU to provide additional funds, although markets were expecting a frosty response and underlying concerns surrounding the political situation persisted with renewed losses in Italian bonds. There was significant caution ahead of the Federal Reserve and European Central Bank (ECB) policy meetings this week.

Markets are expecting a relatively hawkish tone from both central banks which limited the scope for currency moves, although there were choppy trading conditions amid position adjustment. The Euro declined to lows around 1.1730 before a recovery to the 1.1770 area as the Dollar failed to maintain gains.

Data to Watch:

00:50 JPY Machinery Orders (MoM) (Apr)
00:50 JPY Machinery Orders (YoY) (Apr)
09:30 GBP Manufacturing Production (YoY) (Apr)
09:30 GBP Industrial Production (MoM) (Apr)
09:30 GBP Manufacturing Production (MoM) (Apr)

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