Sterling received an injection on the first of the month as fears of a hard Brexit were slightly appeased. President of the Eurogroup Jeroen Dijsselbloem stated that the European Union (EU) may find a way for the UK to access the internal market. In addition, Brexit secretary David Davis has revealed that the UK is prepared to consider paying the EU to secure terms on Single Market access. This is an unexpected turnaround in tone from both parties and as a result we saw sterling make gains across the board. Against the US dollar we saw sterling return to levels last seen in October while against the euro it soared to levels last seen in September.
Meanwhile, the key economic reading released yesterday was slightly disappointing but still healthy. Data from the manufacturing Purchasing Managers Index (PMI) showed that the pace of expansion slowed somewhat but the sector is still in expansionary territory.
News and data has been fairly mixed this week after the Bank of England (BoE) bank stress test results and the Financial Stability Report. This test revealed that RBS failed the BoE stress and would perform the worst under the severe test the BoE put them under. In addition, Barclays and Standard Chartered also missed key hurdles. Positivity following comments around a softer Brexit more than made up for this, however.
Today we have construction PMI data released, with any political updates likely to be the main driver of additional price action.