Sterling steadied on Monday after a batch of very poor monthly output readings drove it to its worst week in a month, casting doubt on the Bank of England's surprise warnings that it is on the verge of raising borrowing costs. A strong U.S. payrolls report on Friday afternoon added to the pain for the pound after unexpected falls in already very slow UK construction, manufacturing and industrial output. That raises the stakes around UK wage and unemployment numbers this week; poor readings could further undermine the credibility of BoE officials' statements around possible rate hikes in the coming months.
The European Court of Justice may be able to make rulings that apply to the U.K. for a “limited” interim period after Britain’s withdrawal from the European Union, Prime Minister Theresa May’s spokesman said in yet another sign of the government’s softening of the country’s stance on Brexit. “He said the transition rules could involve the ECJ for a limited time, but obviously that’s all a matter for negotiation," the spokesman, James Slack, told reporters in London, referring to earlier remarks by May’s deputy, Damian Green.
The comments signal flexibility on one of May’s red lines: that the ECJ should have no sway over Britain after Brexit. The country is due to pull out of the bloc by the end of March 2019, but ministers have repeated that a transition deal may be needed to smooth the exit. When Green was asked to rule out influence of the ECJ during any such transition, he said that rules during that period would be different from the rules after Brexit is completed.
The dollar posted relative gains on Monday as the bull run continued from Friday’s positive data. The greenback had gained on Friday after a strong U.S. jobs report supported the idea that the Federal Reserve is on track to raise interest rates at least once more this year.
Investors will be focused this week on Fed Chair Janet Yellen's semi-annual monetary policy testimony before Congress on Wednesday and U.S. consumer inflation data on Friday. Forecasters are divided on whether the central bank will hike rates but data from the overnight index swaps market show that money markets are almost fully priced for an increase.