The UK has been a key focus for traders at the start of the week, with Brexit talks back on the agenda, manufacturing data underwhelming and the US on holiday.
The pound is coming under pressure again on Monday after Michel Barnier dashed hopes that his comments last week in any way meant the EU is going to bend its rules on the single market in order to come to an agreement with the UK. While his statement that they are prepared to offer a partnership that has never existed with another third country is positive for negotiations - as it moves away from discussions over the UK adopting an existing model, which was never particularly helpful – Brussels was clearly concerned that it sent the wrong message and sought to clarify its position.
The result is that the pound has gone from trying to break back above 1.30 against the dollar to back below 1.29 and once again looking a little soft. That isn’t being helped by the widespread disapproval of UK Prime Minister Theresa May’s Chequers plan which initially triggered the resignation of two prominent Brexiteers in her team – David Davis and Boris Johnson. It seems that the number of those that support the agreement is dwindling and with the EU also not on board, it looks dead in the water which means that with only a couple of months until the revised deadline, we’re back to square one.
Putting sterling under further pressure this morning has been the August manufacturing PMI which slipped to 52.8, easily missing expectations and suggesting that even a weaker currency is failing to support the sector. The PMI slipped to its lowest since July 2016, just after the Brexit referendum, citing near stagnant employment growth and a slowdown in the rate of output and new order growth. Of course, this could be a temporary blip but the general trend hasn’t been great and it’s just another worrying sign ahead of exit day, with no deal still being a very real possibility.
The number is the first of three PMIs this week, with the services number on Wednesday being of particular interest given the out-sized contribution of the sector to the economy. Should those numbers also provide a more pessimistic view of the economy heading into the end of the year, we could see further pressure on the pound, especially if this is accompanied by more criticism of May’s plans, with MPs due to return to parliament.
The rest of the day is likely to be relatively quiet given the bank holiday’s in the US and Canada but the rest of the week will be much more interesting, politics likely stealing the spotlight once again but attention also falling on the August jobs report on Friday.
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