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Once again a surprise political event has altered the landscape of global FX markets; however, far from reacting in a similar vein to the “Brexit playbook”, the US presidential election instead prompted the complete opposite.
A surprise Donald Trump victory was forecast to produce a sell-off in the US Dollar similar to the 8% fall in the value of the Pound after Britain voted to leave the EU. Yet soon after the announcement of the Republican candidate’s victory the Buck instead strengthened and now the US Dollar Basket Index, a weighted index of the Dollar’s performance against a basket of currencies, is now at its highest level since December 2015.
Much of the greenback’s strongest weekly performance of the year is based upon increased expectations that the US Fed will hike rates in December, something that before the election was expected to move the other way. Markets quickly readjusted from a pessimistic outlook for the Trump presidency to a cautiously optimistic one, focusing on ‘the Donald’s plan to inject a wide ranging fiscal stimulus (tax cuts, massive infrastructure spending and sector deregulation) in turn raising inflation expectations. However, uncertainty still surrounds the soon-to-be President, whether he will be able to implement his campaign trail pledges, many of which were both controversial and wildly speculative remains to be seen. Will Trump’s old foe Fed chair Janet Yellen surprise the markets and choose not to pull the rate hike trigger?
Sticking to monetary policy outlook, the latest inflation data for the UK released on Tuesday will be keenly anticipated by Sterling traders for any significant upturn in the general level of prices that has come about after the Pound’s devaluation in late June. Following on from Bank of England’s Governor Mark Carney’s remarks that interest rates could now move in either direction, a decidedly hawkish tone, a sharp uptick in CPI could lead the Monetary Policy Committee to consider a rate hike in the near future, although for the moment are unlikely to go back on the post-Brexit rate cut made in August. An increase in inflation could lead to a bullish outlook for Sterling, continuing its post US election streak against the Euro, while prospects against the Dollar will remain hinged upon the rhetoric of its President-elect over the coming week. Whatever the data shows, however, will likely be jumped upon by the Treasury Select Committee only 30 minutes later in its quarterly grilling of the BoE chief. Watch this space.
Meanwhile, the focus for the Euro in the next five days will be on Tuesday’s latest GDP data release. ECB President Mario Draghi will be hoping that the latest round of asset purchases by the central bank will have helped to stimulate wider Eurozone growth, although as a second Q3 reading following last month’s 0.3% figure, this release carries less significance. A lack of drivers for the Euro will not help the currency to shrug off recent weakness and will, once again, be at the mercy of its peers’ performance for any real movement.
Key data this week (Sign up here to get our daily live macro-calendar)
UK Economic Announcements
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Intl Economic Announcements
SUN
23:50 GDP (JPN)
MON
02:00 Industrial Production, Retail Sales (CN)
04:30 Industrial Production (JPN)
10:00 Industrial Production (EZ)
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UK Economic Announcements
09:30 CPI, RPI, PPI, House Price Index
Intl Economic Announcement
07:00 GDP (DE)
09:00 GDP (ITA)
10:00 GDP (EZ)
10:00 ZEW Surveys (DE & EZ)
13:30 Empire Manufacturing, Advance Retail Sales (US)
15:00 Business Inventories (US)
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UK Economic Announcements
09:30 Unemployment Data
Intl Economic Announcements
12:00 MBA Mortgage Applications (US)
13:30 PPI (US)
14:15 Industrial & Manufacturing Production (US)
15:00 NAHB Housing Price Index (US)
15:30 DOE Oil Inventories (US)
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UK Economic Announcements
09:30 Retail Sales
Intl Economic Announcements
10:00 CPI, Construction Output (EZ)
13:30 CPI, Housing Starts & Building Permits, Jobless & Continuing Claims, Weekly Earnings, Philly Fed (US)
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UK Economic Announcements
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Intl Economic Announcements
07:00 PPI (DE)
15:00 Leading Indicators (US)
16:00 Kansas City Fed (US)
18:00 Baker Hughes Rig Count (US)
Technicals
Technicals
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