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Brexit news back in play for Sterling markets - US Fed on hold for now but more rate rises ahead

Media reports suggest that UK PM May will back a new “customs partnership” with the EU. This would mirror the EU’s customs regime. The plan is seen as solving the Irish border issue but has been described as unworkable and is likely to be opposed by Eurosceptic MP's. The ‘inner cabinet’ is scheduled to meet today to discuss customs policy. 


This week’s UK April PMI data is being watched closely for signs that economic growth is bouncing back after a weak Q1. Yesterday’s UK manufacturing PMI was weaker than expected and down from April. However, as the manufacturing index held up relatively well in March, during the cold snap, there was no reason to expect a marked April rebound. Today’s reading for construction and tomorrow’s for services are potentially much more interesting as both dropped sharply in March. Many expect the construction headline measure to pick up to 52.5 from 47.0.


Eurozone economic activity seems to have slowed even more abruptly in the first few months of 2018 and that is likely to be reflected in today’s estimate for Q1 GDP. Already released estimates for some of the major economies in the region have painted a mixed picture. In France, Q1 growth fell to 0.3% from 0.7% in Q4, but in contrast the Spain’s growth of 0.7%, was the same as the previous quarter. For the Eurozone as a whole many forecast growth slipping to 0.4% from 0.6% in Q4 with the risks skewed towards a weaker out-turn.


Finally to the US and the US dollar and US Treasury yields moved higher ahead of today’s policy announcement from the Fed. Markets will be watching for any sign that the US central bank plans to speed up the pace of rate hikes.