Despite the pound having a good day on Tuesday due to a slightly better than expected services PMI number it was the old headline favourite Brexit than put the markets on alert following a string of negative headlines yesterday afternoon which do not make encouraging reading. Primarily the focus is around the government’s backstop plan for Northern Ireland, a so called Temporary Customs Arrangement (TCA), which PM May had been planning to send to Brussels this Friday. The CTA was reportedly set for publication today, but overnight headlines have suggested that its release may be delayed, with further discussions on its contents set to take place at today’s Brexit war cabinet meeting. Effectively it revolves around a plan to remain part of a Customs Union with the EU for a ‘time limited’ period, whilst a solution is sought over the Northern Ireland Border. However the draft proposal has drawn the ire of Brexit Secretary David Davis, who is reportedly furious over the lack of a definite end date to the UK’s membership of a Customs Union, equally the news will not go down well with those Eurosceptics members of the Tory Party. Therefore it could be a testy few days for the UK government, with the publication of the CTA, the Brexit war cabinet today and the return of the EU Withdrawal Bill to the Commons next Tuesday.

In an interview with radio station LBC yesterday MPC member Ian Mccafferty stated that interest rates should rise slowly now to keep inflation down, or the UK could face a tougher battle to bring prices under control in the future. Mccafferty was outvoted at May’s policy meeting and has warned that failing to act now will lead to larger increases in the future. The market is perceiving the next possible rate hike for the UK to come in August although this is very much going to depend on future data releases. Tuesday services PMI will certainly put the wheels in motion but it’s still very finely poised.

It would seem that the Northern Irish Brexit border dispute will dominate the headlines and could potentially leave the pound vulnerable. On the data front the latest revision to Q1 Euro area GDP is due for release at 10am and will be closely watched by the markets. In the US this afternoon it is relatively quiet with initial jobless claims providing the only highlight when they are released at 13:30. 

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