Sterling on front foot – for now

Sterling strengthened into the close of play on Friday to trade at almost 88.5p to the euro and at $1.25 against the dollar. There have been some positive noises emerging about the chances of a Brexit deal between the UK and the EU, centred around a Northern Ireland-only backstop, though it’s probably fair to say those soundings are coming mainly from the UK side with the EU adopting the role of a ‘doubting Thomas’ . Still, the two sides are engaging, with Boris ‘Incredible Hulk’ Johnson due to meet Jean Claude-Juncker today while the UK Brexit Secretary holds talks with the EU Chief Negotiator, Michel Barnier. Meanwhile, the euro is holding onto the gains it made against the dollar following last Thursday’s ECB meeting, trading this morning at just over $1.1050

There was a sharp rise in core bond yields last week – of the order of 35bps (to 1.90%) in the case of US 10-year yields and 25bps (to 0.45%) in the case of equivalent German yields. There were some mildly positive developments on the US-China trade front as well as some talk about an interim trade deal, which contributed to the rise in yields, while yields had fallen in the period leading up to the ECB meeting so perhaps some pull-back in was inevitable after it. That said, the ECB delivered a significant stimulus package, including a cut in the deposit rate, the prospect of a further reduction if necessary, and open-ended monthly bond purchases starting on 1st November

Oil prices have spiked higher following a drone attack on a Saudi oil production facility over the weekend. Brent crude is currently up $5 at $65 per barrel, having been more than $10 higher earlier this morning. How long prices remain more elevated will partly depend on how quickly production is affected and what alternative sources of supply can be readily tapped

Both the Fed and Bank of England hold monetary policy meetings this week. The Fed is expected to cut interest rates by another 25bps at the conclusion of its two-day meeting on Wednesday, while the BOE looks set to announce unchanged rates (of 0.75%) on Thursday

Data due this week includes CPI inflation and retail sales in the UK on Wednesday and Thursday respectively