The British pound has posted gains to start off the week. In Monday’s North American trade, GBP/USD is trading at 1.3852, up 0.37% on the day. In economic news, British Services PMI improved to 54.5, above the estimate of 53.3 points. In the US, the ISM Non-Manufacturing PMI slowed to 59.5, but managed to beat the estimate of 58.9 points.
The pound has started the week with gains, despite growing concerns over tensions between London and Brussels over Brexit. On Friday, Prime Minister May outlined her vision of relations between the EU and Britain after Brexit. May sought to lower the recent sharp rhetoric surrounding Brexit, saying that both sides needed to show flexibility in order to reach an agreement. May said that she was seeking a free trade agreement with the EU that included financial services. The response from Brussels has been lukewarm, with some policymakers saying that Britain continues to operate under the illusion that it can leave the club but still enjoy the benefits. Last week, there were sharp exchanges between the two sides after the EU releases a draft of the legal framework of the Brexit agreement.
The US dollar was broadly lower last week, after President Trump sent shock waves through the markets when he announced stiff tariffs on steel and aluminum, in order to protect domestic producers. Under the new scheme, foreign steel will be taxed at 25% and aluminum at 10%. The response to the move was overwhelmingly negative, both abroad and in the US. China and the EU immediately denounced the move. US auto makers and oil and gas producers also condemned the tariffs, saying they could get caught in the middle of a nasty trade war if other countries retaliate. In imposing the tariffs, Trump relied on a provision which allows such measures for national security, but clearly, US trading partners will not quietly accept these protectionist measures.
