nvestors were quick to sell the Pound as FX markets opened for the week yesterday following comments from Britain’s trade minister Liam Fox. Fox, a prominent supporter of Brexit within Theresa May’s cabinet, claimed over the weekend that he saw more chance of the UK leaving the European Union without a deal than with one. With negotiations stuttering and optimism over the Brexit process turning sour in recent weeks, net short GBP positioning fell to its lowest level in ten months last week, suggesting that investors are anticipating additional losses for the currency in the coming weeks.

Next up for the Pound in terms of economic data will be Friday’s preliminary GDP data for the second quarter, which is expected to show that the UK economy slowed further in the three months to June. In the meantime, Brexit news will undoubtedly remain the main driver of the UK currency.

Euro range bound amid lack of economic news

The Euro recovered yesterday afternoon, having briefly touched its weakest position in six weeks against the US Dollar. EUR/USD did, however, remain mostly range bound during the session, with a complete lack of major economic or political news behind the limited volatility. Data out of the Eurozone this morning was also all second tier. German industrial production numbers surprised to the downside in June, posting a larger-than-expected decline of 0.9%, another sign that activity remains soft in Europe’s largest economy.

This week bodes to be an unusually quiet one in the Euro-area, with no major macroeconomic releases on the docket. We instead expect the common currency to be driven largely by overarching expectations for US monetary policy, and the markets view on the prospect of a looming global trade war.

Threat of US-China trade war continues to dominate

Currency trading was similarly quiet in the US as markets opened for the week on Monday, with investors instead eyeing up announcements later in the week. The main focal point of FX trading in the US this week will be Friday’s inflation data for July, which is expected to confirm that consumer price growth remained at its highest level in over six years last month.

Aside from economic news, the threat of a US-China trade war continues to dominate. As we mentioned previously, we think that USD is in a good position for further gains should tensions escalate, given the US economy is largely domestically driven, while many of its emerging market trading partners are far more susceptible to external shocks.