Officials last week gathered at the European Commission headquarters in Brussels for the start of Brexit negotiations, which will soon set the terms of the UK’s divorce from the European Union. Brexit talks will focus on trade, legal, logistical and financial terms of Brexit and how exactly Northern Ireland, a U.K. province, will remain in the EU’s single market and retain access to EU programs after Britain’s departure.
Early talks between Brexit secretary David Davis and Chief European negotiator Michel Barnier were aimed to establish priorities and secure a timetable for the U.K.’s departure, refrained from any discussion of trade, on the European Union’s request. David Davis’s team of United Kingdom, special negotiators, faced Brussels Michel Barnier’s 29-strong team of European special negotiators, who will help coordinate Brussels’ efforts to reach a divorce deal with Britain by 2019.
British Prime Minister Theresa May also headed to Brussels this week, to negotiate the future rights of EU citizens. She discussed offering those who arrived in the UK lawfully before Brexit, the chance to build up the same rights to work, healthcare and benefits as UK citizens. The prime minister told the European Union that the United Kingdom was willing to agree to a “cut off point” between 29 March this year, when May formally triggered article 50. German Chancellor Angela Merkel said Britain’s promise to grant full rights to EU citizens who have been living in Britain for five years was “a good start” to Brexit talks. Merkel also cautioned that the two years of Brexit negotiations that started this week involve “many, many other issues.” She specifically cited the bill Britain will have to pay to leave and the border situation in Ireland as examples.
Following the Federal Reserve’s decision to raise rates, FOMC members this week gave scheduled speeches, focusing on the current shape of the US economy. During New York Fed President William Dudley’s speech, he said that sustained job gains in the U.S. will eventually trigger higher price growth, and he remained unconcerned with low inflation.
Speaking on Tuesday, Dallas Fed President Robert Kaplan said that he was not calling for pause in rate increases yet, whilst Chicago Fed President Charles Evans said the Fed should slowly raise interest rates, however he remained optimistic on the US economy and employment.
Hawkish comments from FOMC voting members helped underpin the U.S. dollar index this week, the euro currency moved to a new monthly low of 1.1118 against the U.S. dollar. The dollar also remained strong against the British pound and the Swiss franc, as traders begin to factor in further rate increases from the Federal Reserve towards late 2017.
The New Zealand dollar moved away from weekly low’s this week, after the Reserve Bank of New Zealand held the official cash rates at 1.75%, however the policy statement sounded less dovish than traders expected. Foreign exchange traders expected RBNZ policymakers to express concern about the rising value of the New Zealand dollar as it spiked higher to 0.7275 against the U.S. dollar as the statement was released.
Bank of England (BOE) Governor, Mark Carney, this week started sterling on a roller coaster ride, as he delivered his delayed Mansion House speech, saying that “Now was not the time to raise UK interest rates”. The news sent the British pound sharply lower, with the GBPUSD pair hitting a monthly trading low against the U.S. dollar, at 1.2577. The following day, BOE chief economist, Andy Haldane, shocked financial markets, when he commented that he is ready to vote for an increase in UK interest rates “relatively soon”. The news is likely to come as a surprise to financial markets because Andrew Haldane has long been considered to lie on the more dovish end of the Monetary Policy Committee’s spectrum. The statement moved the British pound away from three month trading low’s, moving to intraday high of 1.2710 against the U.S dollar.