The US dollar is confined to narrow ranges against the euro and yen, straddling unchanged levels in the Asian session and the European morning. The action is elsewhere.  

The British pound is the weakest of the majors, paring 0.4% against the greenback, though around $1.3425, it can hardly be considered weak. A month ago, sterling was a few cents lower. Still, its gains reflected two things: broader dollar weakness and optimism on Brexit talks.  

The British government was in denial, and perhaps because of this, many investors do not recognize the conflicting and mutually exclusive demand s that have been unleashed by opening the proverbial Pandora’s Box. Specifically, there are three issues the UK needs to address. The role of the ECJ to protect EU citizens in the UK after Brexit, the Irish border, and making good on its financial commitments.  

Since the end of March when the UK triggered Article 50 there has only been apparent movement on the funds, and it was belated at that. The ECJ represents encroachment upon sovereignty that antagonizes many who advocate the UK leaving the EU. The EU, of course, sees it quite differently.  We have highlighted the mutually exclusive demand over the Irish border. The EU and Ireland refuse to accept a hard border between Northern Ireland the Republic of Ireland. The DUP, which the Tory government’s survival rests, refuses to countenance a hard border between Northern Ireland of the UK. 

Moreover, upon hints that May was going to accept the EU and Ireland position, the DUP expressed its disapproval (via phone call in the middle of May’s lunch with Juncker, which she had to take as the future of her government was likely threatened). Some officials in Scotland and London wanted the same privilege of being allowed to remain in the single market. It indeed a sticky wicket. 

UK data were disappointing. The BRC like-for-like retail sales for November showed consumers still reluctant to buy non-essentials. Food sales were up and that helped blunt the impact of the decline in non-food sales. Auto registrations (proxy for sales) remain depressed. The -11.2% year-over-year in November compares with a gain of nearly 3% last November. The service PMI fell to 53.8 from 55.6.  It offset the better manufacturing survey and the composite fell to 54.9 from 55.8.