The pound remained steady on Monday as investors digested the Tory candidate leaders' debate, televised on Sunday evening. With front runner Boris Johnson a no show, the 5 other remaining candidates had the opportunity to set out their stalls. Rory Stewart is being picked up as having done well, overtaking Jeremy Hunt and jumping to second favourite position with the bookies.

The next test comes tomorrow. Each of the remaining candidates need to secure at least 33 votes in Tuesday's ballot in order to remain in the race to become Tory leader. Whilst the bookies are pointing to Rory Stewart managing this, he does need to pick up at least 14 votes to be in with a chance. Jeremy Hunt had 43 votes in the first round and Michael Gove 37.

Yet regardless of whether Rory Stewart or Jeremy Hunt make it to second place, the firm favourite is still Boris Johnson; supporter of Brexit come rain or shine, deal or no deal. With the increased prospect of the a no deal Brexit it's unlikely the pound will manage any meaningful move higher, even if inflation data on Wednesday comes in better than forecast. Any moves higher right now should be viewed as a selling opportunity, rather than the start of a new upward trend.

The pound is currently hovering just shy of $1.26, flat on the day on the day. That is mainly down to a dollar weakness story rather than any notable strength in the pound.

FOMC in focus

Dollar traders are looking ahead to the FOMC later this week. The broad expectation is that the Fed will keep rates on hold in June but will adopt a more dovish tone amid deteriorating US economic data. Retail sales remain a bright spot, but with job creation and wage growth slowing considerably, it could only be a matter of time until this is reflected in the lagging retail sales indicator.

US indices inched higher as investors remain cautious ahead of the FOMC. Whilst current numbers don't justify a cut this month, the markets are pricing in a 85% probability of a rate cut next month and a 96% probability of a rate cut in September.

ECB forum to weigh on the euro?

Central banks will remain in focus moving across the afternoon. Whilst the euro is gaining on dollar weakness, its ability to hold onto those gains depends largely on the headlines coming from the ECB forum. Central bankers are meeting at ECB Forum in Sintra, Portugal, where they will weigh up the economic landscape. They are expected to consider whether the eurozone requires further support from the ECB. Whilst no formal policy announcement is expected, commentary from the forum and particularly from Draghi this afternoon and tomorrow will be keenly listened to by the markets.

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