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US dollar bulls may have hoped that with a New Year comes a new direction for the global reserve currency. The greenback has, however, been less willing to reverse its 2017 trend, beginning 2018 in the same vein it left the last.
Could this be a temporary blip on the radar before a broad recovery? Or is this a mirror image of 2017, where the dollar was one of the worst performing major currencies of the year in its weakest 12 months since 2003?
Now that the Republican Tax Reform Bill has been signed into law by President Trump, traders’ focus will now move on to the ‘under new management’ Federal Reserve and their policy direction for 2018. At their 12-13 December meeting, policymakers projected three further rate hikes to take place over the coming 12 months. However, many have speculated that incoming Chair Jerome Powell, a former investment banker, was nominated by President Trump in the belief that he will be more hawkish than predecessor Janet Yellen, despite his commitment to Yellen’s gradual policy tightening policy.
But it’s not just at the top that the Fed sees changes. With a new year comes a new board of voting members, with the heads of the Atlanta, Cleveland, Richmond and San Francisco regional Fed departments joining the incoming head of the New York Fed and the permanent board of governors.
Clues as to the new members’ voting patterns will become clear after more speeches are given, although this week we have the Cleveland Fed’s Mester speaking twice, first on Friday (5:30pm) and then on Saturday (3:15pm), while a further speech next week from new voting member Bostic will provide further evidence of the newest Fed members’ voting intentions.
On Wednesday, the minutes from the December meeting are released (7pm), in which many will be hoping from more clarity from Powell and other new members (including new Governor Quarles), as well as potentially revealing any opposition to the current three hike consensus.
Friday sees the release of December US Jobs Report (1:15pm), a key macroeconomic indicators for the world’s largest economy. Previous reports have been impacted by multiple natural disasters, most notably hurricanes Harvey and Irma, which produced the highest reading in 12 months. December is likely to see a move back towards the norm and back below 200k, however any upside beat or positive change to the unemployment rate could provide the dollar with some uplifting news in a troubling downtrend.
But the US Jobs Report is not the only major data release on Friday.
Eurozone Consumer Price Inflation (10am) is seen cooling in December, retreating from November’s 1.5% and posing a fresh headache for ECB President Draghi. The central bank has begun the tapering of its vast Quantitative Easing (QE) programme, despite inflation stubbornly remaining below the bank’s 2% target. A hotter than expected print would likely be bullish for the Euro, however having remained between 1.3%-1.5% during the entire second half of 2017, this would seem unlikely.
Other macro data of note this week includes German Unemployment (Wednesday; 9am), UK PMI Construction (Weds; 9:30am), US ISM Manufacturing (Weds; 3pm), Eurozone PMI Services (Thursday; 9am), US ADP Jobs (Thurs; 1:15pm), US PMI Services (Thurs; 2:45pm), UK BRC Shop Price Index (Friday; midnight) and US Durable Goods Orders (Friday; 3pm).
UK Mortgage Approvals and PMI Services prints in particular could help the pound make further gains against the US dollar, having traded a fresh 3-month highs against the buck, before a widely touted cabinet reshuffle in Theresa May’s Conservative government, expected next week.
Will Foreign Secretary Johnson stay on? Or will the staunch Brexiteer be delivered a new Brexit-focused role to fill the vacuum left by the departure of May’s second in command Green?
Key data this week (Sign up here to receive our daily live macro-calendar)
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UK Economic Announcements
09:30 PMI Construction
Intl Economic Announcements
09:00 Unemployment (Germany)
15:00 ISM Manufacturing (US)
19:00 Fed Minutes
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UK Economic Announcements
09:30 PMI Services, Consumer Borrowing, Mortgages
Intl Economic Announcements
02:45 PMI Services (China)
09:00 PMI Services (Eurozone)
13:15 ADP Jobs (US)
14:45 PMI Services (US)
15:30 Oil Inventories (US)
UK Economic Announcements
00:01 BRC Shop Price Index
Intl Economic Announcements
10:00 Consumer Price Inflation (Eurozone)
13:30 Non-Farm Payrolls, Jobs report (US)
15:00 Durable Goods Orders (US)
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