his followed comments from the UK’s trade minister Liam Fox on Sunday that suggested Britain may need a transitional agreement in order to smooth its exit from the European Union. A former UK single market advisor also warned that that Britain is unlikely to be allowed to remain partly inside the EU’s custom union, contrary to additional comments made by Fox over the weekend. This would mark a fairly significant blow to those hoping the UK will retain at least some access to the European Union following the Brexit process.

Meanwhile, the Dollar rallied as markets opened for the week, steadying around its highest level in trade-weighted terms in 14 years. The greenback continues to be well supported by expectations for higher growth and inflation under a Donald Trump presidency in 2017. On the data front, yesterday’s services PMI from Markit missed expectations. The index fell to 53.4 from 54.6.

This week will be a typically quiet one in the currency markets ahead of the Christmas and New Year’s period, with little in the way of economic data due out of the major economies in the next few days. Absent any surprise political announcements, we expect the major currencies to trade within relatively narrow bands until January.

Major currencies in detail

GBP

Sterling fell 0.6% against the US Dollar on Monday, with a lack of any significant announcements in the currency markets this week causing traders to focus again on the possibility of a prolonged Brexit process in the UK.

Liam Fox’s comments over the weekend that Britain could retain access to “part of the customs union, but not in other parts” was shot down by Sir Andrew Cahn, who advised on setting up the single market in the 1980. Cahn raised doubts over whether such an agreement could be made, claiming that it may prove illegal under WTO law.

This morning’s distributive trades survey from CBI, released today is generally not a major market mover.

EUR

With little economic data yesterday, the Euro was hardly changed against its major peers, ending 0.2% lower against a broadly stronger US Dollar.

The Euro paid little attention to yesterday’s strong set of German confidence data from IFO, which exceeded expectations across the board. The closely watched business climate index jumped to 111.0 from 110.4, its highest level since February 2014, while the current assessment measure increased to 116.6 from 115.9. Firms in Europe’s largest economy have been buoyed by the impressive finish to the year in the German economy, with services and manufacturing sentiment around multi-year highs.

German producer price data this morning is unlikely to rock the boat.

USD

The US Dollar hovered around its 14 year high on Monday as investors continued to bet on stronger growth and a fastest pace of interest rate increases under a Donald Trump presidency.

Financial markets are continuing to come around to the idea of multiple interest rate hikes by the Fed in 2017 following last week’s fairly hawkish FOMC statement and ‘dot plot’. Fed funds futures are currently pricing in just two hikes next year, one in June and another in November. We think that this remains slightly conservative, and expect to see an upward correction in the US Dollar should economic data in the New Year continue to suggest 3, or even 4, interest rate hikes next year are likely.

Today will be completely void of any major economic data out of the US economy. The next announcement of any significance will be Thursday’s durable goods orders.