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After a rollercoaster week of central bank updates, appointments and disappointments, it’s back to politics and macroeconomics to drive foreign exchange markets, with events across the globe likely to dictate sentiment throughout the week.
Starting close to home, the ongoing Westminster sleaze scandal has gained further traction over the weekend, leading to another MP being suspended by one of the two main parties, only days after the resignation of Defence Secretary Sir Michael Fallon.
Prime Minister Theresa May is already walking a tightrope; after the disastrous June snap election, the PM has a working majority of just seven in the House of Commons, opening the door for rebellious backbenchers to completely derail government plans should they so wish.
Last week saw the first cabinet member fall to the latest scandal to hit the Houses of Parliament. Another cabinet resignation would force May and the government into a corner, and could subsequently see Sterling suffer should another reshuffle need to held.
But it’s not just in London that a Prime Minister is struggling to control their ministers.
The constitutional crisis continues to rage on in Spain, with Catalan Carles Puigdemont having turned himself into the Belgian authorities over the weekend after a European warrant for his arrest was issued by the Spanish authorities.
Having been granted bail, the seemingly exiled leader is now at the mercy of the Belgian judicial system, however the the uncertainty surrounding the future of the region will likely have an impact on Spain’s economy, warned the country’s finance minister. As one of the largest countries within the Eurozone, any immediate detriment to the Spanish economy could see the Euro extend its downtrend against the US dollar.
Ongoing Brexit negotiations will, as always, contain the prospect for a knee-jerk reaction in GBP/EUR to whoever is perceived to have the upper hand in Brussels talks, although a progression in talks would likely see Sterling benefit more than its European counterpart – the pairing already trading off its post-BoE lows will attest to this.
Whilst they may find themselves in the unusual position of not being the focus of political scandal (at least while the leak dubbed the ‘Paradise Papers’ continues to be batted away by Commerce Secretary Wilbur Ross), the Trump administration has another beast entirely to grapple.
Proposed Republican tax cuts have revived appetite for the US dollar, with the global reserve currency continuing to trade close to 4-month highs after the announcement of the proposed plan last week. Now, lawmakers in the Senate will outline their views for the policy that has underpinned the rally in US stocks that has taken place since Donald Trump’s election 12 months ago.
An underwhelming plan could take the wind out of the Dollar’s sails, whereas a recommendation that can be speedily and universally passed could see the greenback trade fresh highs.
Following the barrage of top tier macro data last week, this week’s offering is considerably toned down. While German Industrial Production (Tuesday; 7am), Eurozone Retail Sales (Tuesday; 10am) and US IBD/TIPP Economic Optimism (Tuesday; 3pm) all have the propensity to move their respective currencies, it’s not until Friday that we get some real headline-grabbing figures.
UK Manufacturing, Industrial and Construction Output (all Friday; 9:30am) will all greatly influence the Pound as trader look to gauge the latest impact of Brexit on the UK economy, while the NISER UK GDP estimate (Friday; 1pm) could accentuate or reverse the earlier data prints. Finally, the US University of Michigan Sentiment (Friday; 3pm) rounds off the week’s data with a bang.
Key data this week (Sign up here to receive our daily live macro-calendar)
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UK Economic Announcements
00:01 BRC Like-for-like Sales
08:30 Halifax House Price Index
Intl Economic Announcements
07:00 Industrial Production (Germany)
09:10 Retail PMI (Eurozone, France & Germany)
10:00 Retail Sales (Eurozone)
15:00 IBD/TIPP Economic Optimism & JOLTS Job Openings (USA)
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Intl Economic Announcements
03:00 Imports, Exports & Trade Balance (China)
05:00 Leading Economic Index (Japan)
12:00 MBA Mortgage Applications (USA)
15:30 Oil Inventories (USA)
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UK Economic Announcements
00:01 RICS House Price Balance
Intl Economic Announcements
01:30 CPI, PPI (China)
07:00 Trade Balance (Germany)
13:30 Weekly Jobless Claims (USA)
15:00 Wholesale Inventories (USA)
UK Economic Announcements
09:30 Industrial & Manufacturing Production, Construction Output, Trade Balance
13:00 NIESR GDP Estimate
Intl Economic Announcements
07:45 Industrial Production (France)
15:00 University of Michigan Sentiment (USA)
18:00 Baker Hughes Rig Count (USA)
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