Sterling's gains prove short-lived - Bank of Ireland Corporate

Sterling strengthened on Friday morning following the agreement reached between the EU and the UK in Phase 1 of the Brexit negotiations, rising to under 87p against the euro at one stage. However, its gains proved short-lived and it weakened over the remainder of the day to close out the week trading at 88p (which is where it kicks off this week)

The EU Council meeting this week is likely to agree that sufficient progress has been made to move to Phase 2. Its President, Donald Tusk, has circulated negotiating guidelines to member states for this part of the talks, which will include agreeing a transition period starting from March 2019 (during which the UK will remain in the EU’s single market and customs union i.e. the status quo will prevail)

Employment in the US rose by a stronger than consensus 228,000 in November according to Friday’s payrolls report, with the unemployment rate remaining at 4.1% and annual earnings growth picking up a little. The dollar was not much changed following the data, though it gained around a cent against the euro, to just under $1.18, over the week

The Fed is expected to raise interest rates by 25bps at this week’s meeting (the announcement is due at 7pm Irish time on Wednesday), though the market will be more focused on what the central bank guides in terms of the number of rate increases that are likely next year (up to now it has been indicating there will be 3 hikes)

The ECB and Bank of England (BOE) also hold policy meetings this week. The BOE raised interest rates by 25bps last time out, so nothing is expected from this week’s meeting, while the ECB has already set out its stall for 2018 – it will continue QE until September 2018 (at least) but will cut its monthly bonds purchases by half from January, and says interest rates are expected to remain at their present level until ‘well past’ the end of QE

Data due though the course of the week include CPI and retail sales in both the UK and US (the latest labour market report is also released in the UK), and flash PMIs in the Euro area. At home, Q3 national accounts are published on Friday