BREXIT negotiations begin...

Week Commencing Monday 19th June 2017


UK: Brexit negotiations get underway

Brexit Secretary David Davis has said he is entering negotiations on the UK's exit from the EU in a "positive and constructive" frame of mind.

As he began talks in Brussels, he said he was determined to build a "strong and special partnership" with the EU. Day one of the negotiations, at the European Commission buildings in Brussels, will be followed by a joint press conference this evening by Mr Davis and the EU's chief negotiator Michel Barnier, a former French foreign minister and EU commissioner.

It comes as Theresa May’s cabinet is torn over how to approach negotiations with Chancellor Philip Hammond and others pushing for a softer approach, while Brexiteers threaten to resign if the Prime Minister abandons her tough stance. At the end of the week, Theresa May will speak to other leaders at European Council summit and while Brexit is not on the main agenda, some officials expect the Prime Minister to signal a softer stance.

Indeed, the talks come after Germany hinted it would be willing to make concessions over the influence of EU judges and single market access in return for a compromise on freedom of movement in a sign that the UK could be offered a so-called soft Brexit. Either way, this is the start of an important journey for the UK, how it will end will define the country for generations to come.

UK: Retail sales continue to disappoint as Inflation bites British consumers

UK retail sales grew at the slowest pace for four years last month, the latest sign of an emerging squeeze in living standards as Brexit continues to bite.

Sales volumes fell 1.2 percent month on month, worse than the 0.8 percent fall analysts has expected. The figures come after strong month-on-month volume growth of 2.3 percent in April, however economists had said those figures were likely distorted by Easter buying surges.

Retail sales were 0.9 percent higher in May compared with the same month last year, after adjusting for higher prices. Last May, retail sales were growing at an annual rate of 5.5 percent. Official inflation figures published earlier this week found that consumer prices were 2.9 percent higher in May that a year ago, while ONS labour market statistics showed that wages had only increased by 1.7 percent in the year to April.

UK consumers continue to be squeezed, and with Credit continuing to boom, things look more and more bubbly by the day!


FX Forecast

Sterling (GBP) - Sterling continue to trade the risk on/off depending on what news is being published. Big moves are expected on the back of any Brexit related releases from negotiations. More pressing, any hint of further destabilisation of Theresa May’s position (resignations etc.) should provoke sharp GBP selling activity.

US Dollar (USD) - The Greenback continue to limp on versus both Sterling and the Euro, with both pairs trading the range. With little in the way of US data out this week we expect things to continue, with the Dollar looking strong versus Sterling and weak versus the Euro.

Euro (EUR) - The Euro continue on its offensive consolidating its new position versus both the Dollar and the Pound. We expect it to perform well on the back of Brexit news, with GBP/EUR potentially dropping into the 1.12’s should we see some surprise news.


Economic Calander for the Week

UK Data:

We have a reasonably quiet week for the UK with Bank of England governor Mark Carney speaking on Tuesday. With this in mind, Brexit negotiations will likely take the front line this week, with the Davis/Barnier press conference likely to cause some volatility.

US Data:

We also have a quiet week for the US, with Home sales the highlight. We expect existing home sales to post 5.55m versus last months 5.57m number, so expect little movement on these. Oil inventories should post a reasonable drop in holdings by -1.6m barrels while New Home Sales should grow by 600k on the month.

EU Data:

In Europe we have Eurozone Manufacturing and Services PMI numbers, all of which should post reasonable figures. We expect manufacturing to come in at 56.8 versus last months 57.0 print, while services should come in at 56.2 versus 56.3.



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