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Last week it was a range of fiscal promises that drove markets, however this week may instead see monetary realities leading FX space in an all-star showing for macroeconomic data and speeches.
US President Donald Trump’s promise of a ‘phenomenal’ reform to taxes in the States in a meeting with airline executives provoked a significant market reaction, as equities surged and the US Dollar broke out from 4 days of falling highs resistance. However this week, it is his supposed nemesis Federal Chair Janet Yellen that could provide the impetus for the Dollar to move in either direction as she gives her semi-annual address to congress on Tuesday and Wednesday.
Since their meeting on February 1, in which no monetary policy action was taken, Fed speakers have provided a mixed commentary on how they see policy progressing. Most notably, non-voter Bullard stated he only saw one rate hike being necessary over the course of 2017 last week, while some voting colleagues have continued to reiterate the Fed’s target is three rate hikes this year.
It is up to their boss then, to take a stance on one side of the argument when she speaks at the Capitol. Investors will be watching intently to see if the Fed Chair definitively rules out a March rate hike, in which case the Dollar could fall back in FX space as investors potentially find themselves in a state of deja vu (remember 2016’s calamitous forecasting efforts?). On the other hand, if she chooses not to do so many might read this as a hawkish move by Yellen and that March may indeed see a rate hike. However, macro data releases aplenty before 15 March mean it is unlikely that this will be the defining chapter in the US monetary policy saga in the lead up to next month’s meeting.
In the UK, this week will provide something of a rarity for FX investors: a week without Brexit. Parliament is enjoying its (well deserved?) February recess, only days after passing through the unamended bill that allows Article 50 to be enacted by PM Theresa May. The bill will now be passed onto the House of Lords, where the same process will be undertaken all over again next week as the unelected peers take their turn to debate the divisive legislation.
This means, however, that macro data will be the key driver of Sterling this week. And rightly so. Several top tier data releases will be sure to have the Bank of England earning their keep, beginning with a deluge of Inflation measures on Tuesday. The metric most in focus for the UK’s central bank, Consumer Price Index (CPI), is expected to continue its charge towards the BoE’s self-imposed 2% target, with any overshoot leaving some MPC members rethinking their positions with regards to the bank’s currently accomodative policy. Retail Sales on Friday will also be of significance, as Mark Carney et al ponder the impact of the weak-Sterling induced inflationary pressures on the average Briton’s wallet.
Finally, the Euro will be the odd one out this week, with the currency set to remain under pressure with the tumultous French Presidential election campaign continuing, whilst the German Chancellor Angela Merkel’s CDU party comes under pressure from their coalition partner SPD, with the latter having recently overtaken Merkel’s party in the polls for the first time since 2010. In monetary terms, the ECB looks set to maintain its dovish position, meaning macro data is likely to go largely unnoticed even in the event of some surprise readings for German and Eurozone preliminary Q4 GDP and German ZEW survey readings. Could political tensions pull the plug on the Euro? Or might weakness in peers spur the Eurozone’s single currency?
Key data this week (Sign up here to get our daily live macro-calendar)
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UK Economic Announcements
09:30 CPI, RPI, PPI, HPI
Intl Economic Announcement
01:30 CPI, PPI (CN)
04:30 Industrial Production (JP)
07:00 GDP, CPI (DE)
10:00 GDP, Industrial Production (EZ)
10:00 ZEW Surveys (DE)
11:00 NFIB Small Business Optimism (US)
13:30 PPI (US)
15:00 Fed Chair Yellen Semi-Annual Testimony (US)
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UK Economic Announcements
09:30 Employment Data
Intl Economic Announcements
10:00 Trade Balance (EZ)
12:00 Mortgage Applications (US)
13:30 Retail Sales, CPI, Empire Manufacturing (US)
14:15 Industrial & Manufacturing Production (US)
15:00 NAHB House Market Index, Business Inventories (US)
15:30 Crude Oil Inventories (US)
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Intl Economic Announcements
06:30 Unemployment (FR)
13:30 Building Permits, Housing Starts, Weekly Jobless Claims, Philly Fed (US)
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UK Economic Announcements
09:30 Retail Sales
Intl Economic Announcements
10:00 Construction Output (EZ)
15:00 Leading Indicators (US)
18:00 Baker Hughes Rig Count (US)
Technicals
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