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As the dust settles after the one of the most surprising and insightful general elections in recent British history, foreign exchange traders will have to re-adjust their forecasts for Pound Sterling.
When the election was called, Prime Minister Theresa May and her Conservative party were expected to significantly increase their parliamentary majority. However, they instead failed to win an outright majority as opposition leader Jeremy Corbyn confounded the pollsters to increase his Labour Party’s total seat share. The result, according to many political commentators, throws into doubt May’s credibility as leader of the UK as the Conservatives look to form the first minority government in over 20 years with Northern Ireland’s DUP.
As a result, Sterling fellRii 1.6% against the US dollar for its worst daily performance in eight months. Further concerns of a second election before the end of the year should the Tory-DUP government break down will likely see the Pound come under further pressure in coming months.
Already, ratings agency Moody’s has commented on the election result, stating that the increased uncertainty following Thursday’s vote is ‘credit negative’ for the UK. And it’s unlikely to end there. As focus moves to the start of Brexit negotiations next week, all eyes will be on how PM Theresa May, Brexit Minister David Davis and the rest of the negotiating team begin proceedings. After the shock election result, will we see the government move to a softer standpoint on Brexit? If Davis’ Monday morning comments that ‘nothing has changed’ are to be believed, there’s little chance that will happen.
However, before the divorce settlement talks begin in earnest, focus will soon turn to the multiple central bank meetings scheduled for this week.
We begin on Wednesday with the fourth 2017 meeting of the US Federal Reserve’s FOMC. The meeting, followed by a press conference with Chair Janet Yellen – a prerequisite for a rate hike on the last three occasions – is widely expected to culminate in the third rate hike since December; Fed Fund Futures are currently pricing in a 95.7% chance that policymakers pull the trigger. Inflation data (Wednesday; 1:30pm) provides the final major print before their decision is made and, should it meet predictions of 2% (headline) and 1.9% (core), it may pose some questions as to whether policymakers’ forecasts for four 2017 rate hikes are warranted. A lowering of expectations could see the US dollar on the back foot as a result.
On Thursday, the eight (rather than nine) members of the Bank of England’s Monetary Policy Committee meet to discuss the UK’s monetary policy. Leading up to the meeting, Inflation prints on Tuesday and Wage Growth figures on Wednesday will be closely watched for evidence that the pinch on consumers’ pockets continues (rising CPI versus falling Average Weekly Wages), while Retail Sales on Thursday will be closely watched for confirmation of Visa figures that predict the first fall in annual consumer spending in four years. However, with the election result creating fresh economic uncertainty, many analysts (HSBC, Deutsche Bank) expect that recent hawkishness may subside and that the Bank may not look to raise interest rates until 2020.
Remaining top-tier macroeconomic data releases include German and Eurozone ZEW Surveys (Tuesday, 10am), German CPI (Wednesday; 7am), US Industrial Production (Thursday; 2:15pm) and Eurozone CPI (Friday; 10am).
Key data this week (Sign up here to receive our daily live macro-calendar)
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UK Economic Announcements
09:30 Inflation (CPI, RPI, PPI, HPI)
Intl Economic Announcements
02:30 Business Confidence (AUS)
10:00 ZEW Surveys (EZ/DE)
11:00 NFIB Small Business Optimism (US)
13:10 PPI (US)
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UK Economic Announcements
09:30 Unemployment
Intl Economic Announcements
03:00 Retail Sales (CN)
07:00 CPI (DE)
10:00 Employment, Industrial Production (EZ)
12:00 MBA Mortgage Applications (US)
13:30 CPI, Average Weekly Earnings, Retail Sales (US)
15:30 Oil Inventories (US)
19:00 FOMC Monetary Policy Update (US)
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UK Economic Announcements
09:30 Retail Sales
12:00 BoE Monetary Policy Update
Intl Economic Announcements
02:30 Unemployment (AUS)
10:00 Trade Balance (EZ)
13:30 Empire Manufacturing, Weekly Jobless Claims (US)
14:15 Industrial Production (US)
15:00 NAHB Housing Market Index (US)
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Intl Economic Announcements
02:00 BoJ Monetary Policy Update (JP)
10:00 CPI (EZ)
13:30 Housing Starts & Building Permits (US)
15:00 Uni. of Michigan Sentiment (US)
18:00 Baker Hughes Rig Count (US)
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