19/06/2017 - Brexit Negotiations Begin Today 

GBP

Sterling weakened amidst a fresh wave of political uncertainty ahead of this week’s Brexit negotiations in Brussels. Britain's Brexit minister David Davis and the European Union's chief negotiator Michel Barnier will start negotiating Britain's departure today, starting a two year divorce process due to end by March 2019. 

Major issues that will be discussed, include, the size of a "divorce" bill, how the U.K. will trade with the EU once it leaves, and the status of EU nationals and Britons living in the EU. Markets now assume British Prime Minister Theresa May's failure to secure her party a majority will lead to a softening of the government's Brexit stance with a greater priority being placed on securing a closer trading relationship with the EU. 

Expectations of a softer stance have been further reinforced by May’s attempts to strike a deal with the Democratic Unionist Party, a small Northern Irish Protestant party. The DUP are expected to favour a soft  Brexit, potentially to minimise the risks to the Northern Ireland peace process. Some analysts have argued that in the medium term speculation of a softer Brexit could support the pound. However, there is still little clarity on the status of the relationship, although currently it appears to be along the lines of a loose coalition.

USD

The dollar tailed off on Friday after the University of Michigan’s consumer sentiment index initially expected to remain unchanged, fell 2.6% from 97.1 to 94.5, its lowest level since Donald Trump’s election victory.
 
The weakness in USD has been further exacerbated by disappointing housing sector data after the US Commerce Department said housing starts decreased by 5.5% in May. Analysts had originally anticipated a 4.1% increase. As a result, the US Dollar Index  was down 0.35%.

Key Announcements

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