15/10/2018 - UK & EU Fail to Agree Terms Over The Weekend

GBP

The pound has retreated off recent highs with Theresa May’s government facing a showdown over her Brexit plans this week after negotiators failed to find agreement during hectic meetings in Brussels on Sunday. Brexit secretary Dominic Raab dashed to Brussels for hastily arranged talks yesterday amid intensifying pressure at home. May was also struggling on Friday to find consensus on Brexit proposals that would be acceptable to her ministers from the Conservative Party and the Northern Irish lawmakers who prop up the minority UK government. Negotiations with the European Union have accelerated and become more positive over the past week, though it appears hurdles still remain.

With less than six months to go until the United Kingdom is due to leave the EU, May is seeking to rally support at home on the details of a divorce deal though it is unclear if she can win parliament’s approval for any agreement. Raab had arrived in the Belgian capital for crunch talks with Barnier, ahead of a critical EU summit on Wednesday at which the terms of the so-called withdrawal agreement are expected to be finalised.

EUR

The head of the International Monetary Fund said that the Italian Government should not target an increase in its budget deficit next year, as it would breach EU spending rules. Paul Thomsen, the IMF's Europe Department chief, said at this stage of the economic cycle, Italy "should take more advantage of the situation to bring down debt." The Italian government's decision to increase public spending in 2019 has raised concerns in Brussels and in financial markets. With investors worried that the extra spending will become a problem in the future due to Italy’s already high debt levels.

Amid concerns over Italy’s commitment to Europes common currency, Italian Deputy Prime Minister Luigi Di Maio on Sunday ruled out that the government could take the country out of the euro zone, saying such talk was no more than scaremongering by its political opponents.

Key Announcements

13:30 - USD: US retail sales (Excluding Auto's) expected to be unchanged at 0.3%