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Monday’s headlines may be dominated by the UK Cabinet reshuffle, however realistically, the political manoeuvrings within the Conservative Party are unlikely to have a major bearing on the Pound. In fact, there is very little by way of UK news this week that will impact Sterling. Instead, events in Europe, the US and further afield are more likely to move the UK’s currency than domestic events.
With that said, Wednesday’s macroeconomic data, including UK Industrial Production and Trade Balance (9:30am), and NIESR UK GDP estimate (1pm), could provide the currency with its only direct drivers of the week. Industrial Production is expected to retreat from November’s 10-month high, falling back towards its 12-month average, while the NIESR estimate is expected unchanged at 0.5%. Any change to this latter figure could provoke a major reaction.
After the digestions of these data, however, focus will move further afield. Much further afield, in fact, as talks between North and South Korea begin ahead of next month’s Winter Olympics. A thawing of the frosty relations between the two states has prompted some to speculate that there could also be a de-escalation between the US and the Northern regime.
Should such a breakthrough occur, it could help the US dollar to extend its rally from close to 3-year lows, although this may be a little too obscure piece of news for US dollar bulls to jump upon.
US macroeconomic data, on the other hand, may provide more footing for the world’s reserve currency of choice. This week sees a multitude of top tier data being released in the latter part of the week, most notably the December Inflation print.
Continued concerns about subdued inflation have underpinned hesitancy for hawkishness amongst members of the Federal Reserve, and this looks set to continue into the start of 2018. Having returned to 2.2% in November, the highest level of inflation since March 2017 (also touched in September 2017), it is expected to retreat to 2.1% in December.
This does not bode well for those expecting more than two rate hikes from the Fed this year as the quandry of low unemployment and low inflation continues, particularly with wage growth remaining only just ahead of inflation.
Throughout the week, a selection of newcomers to the Fed’s policy-setting committee, the FOMC, are being trotted out before the media, where expectations are for their views on US monetary policy to be revealed. Raphael Bostic, the Atlanta Fed President, speaks on Monday evening (5:40pm)shortly before San Francisco’s Williams (Mon, 6:45pm). The latter was particularly bullish over the weekend, forecasting three rate hikes over the coming 12 months.
This bullishness could be offset, however as 2017 dissenters but 2018 non-voters Kashkari (Tuesday 3pm) and Evans (Wednesday 2pm) also share thoughts.
The focus will be on whether two or three hikes are expected over the course of the year, an argument that will likely gain more traction after the aforementioned inflation data.
Other major data this week includes Eurozone Unemployment (Tuesday, 10am), US IBP/TIPP Economic Optimism (Tuesday, 3pm), Chinese Consumer and Industrial Inflation (Wednesday; 1:30am), US Import Prices (Wednesday, 1:30pm), Eurozone Industrial Production (Thursday, 10am) and US Producer Price Inflation (Thursday; 1:30pm).
All the while, coalition talks continue in Germany, where German Chancellor Merkel seeks to form a government with the second largest party, Martin Schulz’s SPD. having ruled out the possibility of a ‘Grand Coalition’ in the immediate aftermath of last year’s election, reportedly both parties are closing in on agreement.
Any news on a successful agreement will likely help the Euro, while further setbacks could result in fresh uncertainty, and understandable bearishness.
Key data this week (Sign up here to receive our daily live macro-calendar)
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Intl Economic Announcements
7:00 Industrial Production (Germany)
10:00 Unemployment (Eurozone)
15:00 IBP/TIPP Economic Optimism (US)
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UK Economic Announcements
09:30 Industrial Production, Trade Balance
13:00 NIESR GDP Estimate
Intl Economic Announcements
01:30 Consumer and Industrial inflation (China)
13.30 Import Prices (US)
15:30 Oil inventories (US)
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Intl Economic Announcements
10:00 Industrial Production (Eurozone)
13:30 Producer Price Inflation (US)
Intl Economic Announcements
02:00 Trade Balance (China)
13:30 Consumer Inflation, Retail Sales, Wages (US)
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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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