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After last week’s key monetary policy updates from the Bank of England and the US Federal Reserve, markets are now winding down before Christmas. Macro data of note is few and far between over the coming five days and could mean that this week’s foreign exchange movements are more reliant on geo-political and equity market factors.
The most impacting event of the weekend was China’s capture of a US unmanned drone in the South China Sea. The subsequent rise in Sino-US tensions (and another series of reactionary Donald Trump tweets) prematurely halted the Fed rate hike inspired US Dollar rally and has the global currency on the back foot at the start of the week.
It may be another Asian economy that revitalises the US Dollar rally this week as the Bank of Japan meets to provide its final monetary policy update of 2016 early on Tuesday morning. The central bank of the world’s third-largest economy is widely expected to loosen its current monetary policy further and could subsequently result in further loses for the Yen against the Dollar. Resultant US Dollar strength early on Tuesday could provide the driving force for a strong close to the year.
Macro data that could impact the USD this week comes in the form of the final reading of Q3 GDP and November Durable Goods Sales, both released on Thursday, for any indication that consumer and economic sentiment has been maintained or even increased further since Donald Trump’s election victory or whether the Trumpflation trade might be losing favour stateside. We also hear from Fed Chair Janet Yellen on Monday after European market close in her first speech since her non-committal (Trump, fiscal policy and hawkish outlook) press conference after the FOMC meeting last week.
Back across the Atlantic, the Euro last week posted its lowest reading against the USD since 2002 after the Fed rate hike, whilst this week Eurozone is once again focused on the Italian banking sector. Ongoing concerns of the health of the Italian banking sector may come to a head this week, with embattled lender Monte dei Paschi attempting to raise fresh capital in order to rescue the world’s oldest bank. A failure to do this could put fresh pressure on banks across the Eurozone and subsequently negatively impact the Euro. Whilst not quite as exciting,<span; color: #333333;”> keep an eye out for Wednesday’s Consumer Confidence reading which is expected at its best level since December 2015 for some brief respite.
Finally, it may be only days until Christmas, however there is unlikely to be any rest for UK and European policy makers as Brexit negotiations continue. Sterling will likely continue to be influenced by the ongoing rhetoric from both Theresa May’s cabinet and their European counterparts as 2016’s most closely watched “will they, won’t they?” moves into 2017.
Macro-wise, Pound Sterling is unlikely to be moved significantly by the final reading of Q3 GDP on Friday given last week’s Bank of England monetary update provided little change in outlook from previous meetings whilst Public Finance data on Wednesday, expected to reach a 2016 high, may spook some investors. Can Chancellor Phillip Hammond surprise FX markets with his infamous attention to detail?
Key data this week (Sign up here to get our daily live macro-calendar)
Intl Economic Announcements
09:00 IFO Surveys (DE)
10:00 Construction Output (EZ)
14:45 Services PMI (US)
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UK Economic Announcements
11:00 CBI Reported Sales
Intl Economic Announcement
N/A Bank of Japan Monetary Policy Decision
07:00 PPI (DE)
14:00 Conference Board Leading Economic Index (China)
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UK Economic Announcements
09:30 Public Finances
Intl Economic Announcements
04:30 Industrial Activity Index (JP)
12:00 MBA Mortgage Applications (US)
15:00 Consumer Confidence (EZ)
15:00 Existing Home Sales (US)
15:30 Crude Oil Inventories (US)
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UK Economic Announcements
00:01 GfK Consumer Confidence
Intl Economic Announcements
13:30 GDP, Durable Goods Orders, Personal Consumption, Chicago Fed (US)
14:00 House Price Index (US)
15:00 Personal Income & Spending, Leading Indicators
16:00 Kansas City Fed (US)
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UK Economic Announcements
09:30 GDP (3Q F), Index of Services
Intl Economic Announcements
01:45 MNI December Business Indicator (China)
07:00 GfK Consumer Confidence (DE)
07:45 GDP (FRA)
15:00 New Home Sales, Uni. Of Mich. Sentiment (US)
18:00 Baker Hughes Rig Count (US)
Technicals
Technicals
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