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For this week at least, the two hot topics that have driven FX space for what seems like the majority of 2017 – the US Federal Reserve and Brexit – may disappear off to stage right, with a climactic return written in next week. However, taking their space in the spotlight this week will be a range of political and macroeconomic sideshows, at least for the time being.
Capturing the headlines over the past seven days has been the lively French Presidential election, a saga with almost as many twists and turns as the last major political election in the West back in November. Conservative candidate and former frontrunner Francois Fillion has been embroiled in a damaging scandal that has seen his position at the front of the pack surrendered to candidates on both the left and right. Marine Le Pen, the far right candidate, is extending her lead over the centre-left Emmanual Macro, leaving Fillon behind in third place, according to the latest polls. Furthermore, Alain Juppe, the man who Fillon beat in the party’s primaries, has ruled himself out of taking the candidacy, sending the Euro weaker against both Sterling and the Dollar.
Le Pen is vehemently anti-EU, having promised to remove France from the common currency as well as renegotiating the country’s membership of the bloc, and therefore any extension of her lead in the polls is usually met with a negative impact on the Euro. Should scandal continue this week (the Conservative party leadership is set to decide whether he should be replaced in the race) this could leave the Euro in a perilous position against its peers. Could the chance of – brace yourselves – Frexit become a real possibility?
Across the channel, Chancellor Philip Hammond will step up to the podium at the expense of the PM Theresa May, putting a temporary halt to the ongoing Brexit soap opera as Article 50 is set to be sent back to the House of Commons next week with amendments attached. The finance minister delivers his first and only Spring Budget – to be swapped with its Autumn counterpart – on Wednesday, and whilst the headlines are likely to be focused on the increased savings made within the economy, Hammond is unlikely to be splashing the cash with his newfound income. Instead, the Chancellor is likely to outline further Brexit contingencies, with the UK’s formal notice of exit expected imminently, while looking at improving spending on social services.
Hammond is also expected to announce improved GDP growth targets, something which could see bulls confident that an improving UK economy may be able to weather the uncharted storms that lay ahead. But of course, they are just that. Uncharted. Consequently, the Chancellor may exercise caution in his address. The NIESR GDP estimate, released later in the day on Wednesday, may therefore instead provide a more realistic figure for Sterling to react to UK growth.
Finally, we reach the world’s global reserve currency, the US dollar. This week sees the delayed release of the most watched macroeconomic metric in the US economy’s arsenal – Non-Farm Payrolls. The key employment gauge is coming a week later than its usual 1st Friday of the month billing thanks to some complicated measuring criteria, however this by no means takes away from its importance. It may even make this month’s reading the most anticipated since September of last year.
Before reaching its self imposed blackout period over the weekend, speakers from the Federal Reserve had pushed hawkish rhetoric almost as far as it would go, subsequently seeing the probability of a rate hike at next week’s meeting soar from 40% to over 90%, according to Fed fund futures. Yet despite this, the US Dollar basket index is still some way off its highs of December 2016, even some way off the highs of last week.
This is where NFP comes in. Despite all of the optimism of Fed speakers, a disappointing reading could see the probability of a rate hike eke away. On the other hand, anything in-line or above expectations should usher in a rate rise next week on the 15th. However, might a rate hike already all but priced in?
We’ll find out on Friday.
Key data this week (Sign up here to get our daily live macro-calendar)
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Intl Economic Announcement
09:10 Retail PMI (EZ)
09:30 Sentix Investor Confidence (EZ)
15:00 Factory Orders, Durable Goods Orders (US)
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UK Economic Announcements
00:01 BRC Sales
08:30 Halifax House Prices
Intl Economic Announcements
07:00 Factory Orders (DE)
10:00 Revised GDP (EZ)
11:00 NFIB Small Business Index (US)
13:30 Trade Balance (US)
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UK Economic Announcements
15:00 NIESR GDP Estimate
Intl Economic Announcements
N/A Exports, Imports, Trade data (China)
07:00 Industrial Production (DE)
13:15 ADP Non-Farm Employment (US)
13:30 Non-farm Productivity (US)
13:30 Unit Labor Costs (US)
15:00 Final Wholesale Inventories (US)
15:30 Oil Inventories (US)
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UK Economic Announcements
00:01 RICS House Price Balance
Intl Economic Announcements
01:30 Consumer Price Inflation (China)
12:30 Challenger Job Cuts (US)
12:45 ECB Policy Decision (EZ)
13:30 ECB Press Conference (EZ)
13:30 Import Prices (US)
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UK Economic Announcements
09:30 Industrial & Manufacturing Production
09:30 Trade Balance, Construction Output
09:30 Inflation Expectations
Intl Economic Announcements
07:00 Imports, Exports, Trade Balance (DE)
13:30 Non-Farm Payrolls, Unemployment, Wages (US)
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