Sterling reverses course

Sterling lost ground against the euro on Friday after the EU’s Barnier said there were ‘substantive’ differences between the EU and the UK on aspects of a transition period, adding that there’s no guarantee one would be agreed. The UK currency fell to just shy of 89p, having strengthened to under 87.5p on Thursday after the Bank of England said it may need to raise UK interest rates earlier and by more than it had previously anticipated. Prime Minister May and some of her government colleagues are expected deliver key speeches on Brexit over the coming weeks, according to reports

The dollar was generally firmer over the course of last week, benefiting as equity markets sold off. It strengthened by about 2 cents against the euro, to around $1.2250, and gained 3 cents, to circa $1.38, against sterling

There was some modest relief for US stocks  on Friday. They closed around 1.5% higher on the day, which helped to contain the losses for the week to a still sizeable 5%. This is supporting European stocks this morning, as they have opened in positive territory

Interestingly, 10-year bond yields in the US ended largely unchanged last week despite the fall in stocks, and indeed have risen to fresh highs of 2.88% in Asian trading overnight

The focus this week will be on CPI inflation data in the UK and US (due tomorrow and Wednesday respectively). Ironically, given market fears about higher inflation, the consensus expects the headline rate in both economies to have fallen back last month, to 1.9% and 2.9% respectively