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Possibilities and probabilities headline this week’s foreign exchange forecasts, as three major events will keep investors busy right the way through until Friday.
We begin with probabilities, something that the US Federal Reserve has been playing with for the past fortnight. The FOMC, the committee in charge of setting monetary policy in the world’s largest economy, meet for the second time in 2017 on Tuesday and Wednesday, announcing their decision at 5pm on the 15th. In the run up to the meeting, speakers including Chair Janet Yellen pushed the rhetoric that a rate hike was possible in March, so much so that Fed fund futures have assigned a 100% probability of a rate increase on Wednesday.
Unusually, markets, investors and economists are in agreement that this will be the case, as has been proved by the weak US dollar even following a strong Non-Farm Payrolls reading. As a result of the pricing in of the rate hike, investors are more likely to focus on the meeting’s accompanying outlook and press conference in order to gauge the central bank’s course of policy for the rest of 2017. Will there be a rate hike in June or September? Could there even be four rate hikes instead of the previously forecast three? Following Yellen’s presser, we may be more enlightened as to the answers.
Also worth mentioning in passing are the two other major central banks meeting this week. The Bank of England and the Bank of Japan are expected to have a minimal impact on FX space in comparison to their more hawkish European counterpart last week. The latter is expected to keep their current accomodative policy in place, while the former is very much expected to be a non-event for Sterling (maintaining position that policy and rates could move as and when the bank sees fit in line with economic conditions) in comparison with this week’s possible main event.
Stealing the headlines in the UK will almost certainly be Article 50. After months of deliberation, legal battles and dissent from the House of Lords, PM Theresa May looks set to finally provide formal notice of the UK’s intention to leave the EU, possibly as early as Tuesday. The final obstacle standing in the government’s way is the House of Lords. The House of Commons will debate the two attached amendments and, should MPs overturn the amendments and the Lords pass the bill without further opposition, the bill will be ready by Tuesday, although the timing of its triggering is still unknown.
But while May and the ruling Conservative party will be happy to defeat the Lords they face opposition Scotland’s ruling SNP party. The party’s leader Nicola Sturgeon has announced that she will begin working on legislation for a second Scottish independence referendum should the UK fail to reach a deal that is preferable to Scotland. This effectively means that should there be no access to the single market, a referendum will take place before Spring 2019. Could Brexit also mean an independent Scotland?
Finally, the first of 2017’s major European elections takes place on Wednesday, as the Dutch head to the polls to elect their new president. Much of the coverage in the build up to the vote has centered on the far-right candidate Geert Wilders. The ever-controversial and divisive figure has kept the media happy with his outlandish statements regarding immigration and his anti-EU position.
A victory for Wilders, while unlikely to result in his PVV party leading the government – the Netherlands is generally led by a ruling coalition of two or more parties and other right leaning parties have already ruled out cooperation – would surely provide the campaign of French right wing candidate Marine Le Pen with a welcome boost as European anti-establishment populism gains yet more momentum. This result could thus see the Euro on the back foot as investors look ahead to the elections in economic powerhouses in France and Germany. After Brexit and Trump, will Europe be the next act?
Key data this week (Sign up here to get our daily live macro-calendar)
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Intl Economic Announcement
14:00 Labour Market Conditions Index (US)
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Intl Economic Announcements
02:00 Industrial Production, Retail Sales (CN)
07:00 CPI (DE)
10:00 Industrial Production, ZEW Surveys (EZ)
10:00 ZEW Surveys (DE)
12:30 PPI (US)
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UK Economic Announcements
09:30 Unemployment Data
Intl Economic Announcements
04:30 Industrial Production (JP)
10:00 Unemployment (EZ)
12:30 CPI, Retail Sales, NY Manufacturing Index (US)
14:00 NAHB Housing Index, Business Inventories (US)
14:30 Oil Inventories (US)
18:00 FOMC Monetary Policy Decision
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UK Economic Announcements
12:00 BOE Monetary Policy Decision
Intl Economic Announcements
03:00 BoJ Monetary Policy Decision (JP)
10:00 CPI (EZ)
12:30 Housing Starts & Building Permits, Philly Fed (US)
14:00 JOLTS Job Openings (US)
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Intl Economic Announcements
10:00 Construction Output, Trade Balance (EZ)
13:15 Industrial & Manufacturing Production (US)
14:00 Uni. of Michigan Expectations (US)
17:00 Baker Hughes Rig Count (US)
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