Pound rises on reports of UK single market access after Brexit

The pound was boosted yesterday following a report in Business Insider stating that the European Parliament may be prepared to grant the UK some form of single market access following Brexit.

This morning the pound is largely on weak form. GBP/EUR is flat at €1.1345, while GBP/USD has slipped -0.1% to US$1.3984. GBP/AUD has bucked the trend to record 0.3% gains and a rise to AU$1.7813, but GBP/NZD has fallen -0.2% to NZ$1.9041, and GBP/CAD is flat at C$1.7703.

Keep reading to see why today’s average weekly earnings figures will be the most important of the day’s UK data…

What’s been happening?

Pound Sterling made some solid gains yesterday after Business Insider reported that the EU Parliament was preparing a resolution to call for the UK to receive ‘privileged’ access to the single market and EU institutions after Brexit.

This goes against the stance exhibited by other EU officials, such as chief negotiator Michel Barnier, who have been firm that single market membership was an all-or-nothing affair.

Both the euro and the US dollar were affected by market anticipation ahead of tonight’s Federal Open Market Committee (FOMC) monetary policy meetings from 31 January.

These weighed on the euro, which was also softened after the latest Eurogroup meeting saw finance ministers conclude that there were still some reforms to be implemented by the Greek government before it could access its next tranche of bailout funds.

This allowed the GBP/EUR exchange rate to strengthen its advance.

GBP/USD, however, slipped below opening levels due to market confidence that today’s FOMC minutes will reveal that policymakers were feeling optimistic about the monetary policy outlook for the US this year.

Markets currently expect three interest rate hikes, but hopes are growing policymakers could even raise borrowing costs four times.

What’s coming up?              

Among today’s slew of employment and government borrowing data, the UK’s average weekly earnings figures for the three months on the year to December will likely be the most impactful release.

Markets want to see an accelerating rate of pay growth, as this will help households to deal with the impact of surging consumer prices and therefore improve the outlook of the UK’s consumer-driven economy.

Further volatility could come mid-afternoon, as Bank of England (BoE) officials Mark Carney, Ben Broadbent, Andy Haldane and Silvana Tenreyro are all due to speak at an event in London.

A bundle of Eurozone PMIs are also set for release this morning but, given the key US release on the calendar this evening, it remains to be seen whether markets will actually pay much attention to data from the currency bloc today.

The US dollar could spend the rest of the day’s session on uncertain form given how close the release of the FOMC minutes are.