Good afternoon,
The week ahead in GBP
You don’t have to watch the news or read the papers to know that progress on Brexit has been non-existent ever since the extension to Article 50 that puts the cliff-edge back to October 31st. With local elections this week and European elections in a few weeks’ time, the political influences on the pound are unlikely to deaden anytime soon.
It is widely expected that both elections are expected to see heavy losses for the Government and, while local elections are not ones to normally move sterling, the rancour within government ranks is at all-time highs. Theresa May has survived a confidence vote from her MPs in the past six months but this is a confidence vote in her from local associations. If her leadership is seen to have lost them as well, that will heap pressure on the Prime Minister, and sterling, ever further.
Thursday’s Bank of England meeting and Quarterly Inflation Report are not going to see interest rates move but, given the expectations that both inflation and growth forecasts are revised higher, we could see one member of the Monetary Policy Committee vote for higher interest rates. Such a vote could prompt a degree of sterling strength.
The week ahead in USD
The combination of high yield and the haven characteristics has made sure that 2019 so far has been a good time to hold dollars. Such performance has come courtesy of a strong foundation of economic data, weakness elsewhere in the world and a yield that outperforms all other G10 currencies.
This Wednesday’s Federal Reserve meeting is not going to upset these dynamics much although we expect that the central bank may feel comfortable enough to highlight last week’s strong GDP report, last month’s supportive jobs report, the ongoing easing of financial conditions and the continued outperformance of global equity markets.
Friday’s jobs report will end a busy week of data and we would not be surprised if the USD was once again on the front foot as we head into the weekend.
The week ahead in EUR
For once, we have seen a political event in Europe not take a swinging axe to the single currency; Spain’s elections over the weekend have left the euro relatively unfazed. We are still of the belief that we could be in for a tough few weeks for the euro and that while a rebound is likely we cannot foresee that materialising before the third quarter.
Tuesday’s GDP report will look rather anaemic, especially when held up against the US’s numbers last week; it is likely to show that the US is growing around 3x as fast as Europe currently.
The week ahead in CNY
Last week’s comments from President Xi set up a period of calm in the Chinese yuan. According to President Xi, the yuan will be kept at a ‘reasonable, equilibrium’ level. We anticipate this to be between 6.60 and 6.80 in the near-term against the USD.
This week’s data calendar will be watched for signs of confirmation that the rebound in data seen last month will continue.
The week ahead in JPY
The next 10 days are going to be difficult for the Japanese yen. The ‘Golden Week’ holidays began today and will last until next Thursday, limiting liquidity in all markets through the overnight Asian session. Stronger than expected growth data from the US last week was enough to push USDJPY back above the 112.00 level and a similar sign of that strength within this week’s payrolls numbers (Friday) should be enough to continue the move out of the haven Japanese yen.
The week ahead in AUD and NZD
It is do or die for the New Zealand dollar this week with the outcome of Wednesday morning’s unemployment release likely to be seen as a binary decision on whether the Reserve Bank of New Zealand should cut interest rates next week.
Markets are currently pricing in a 40% chance that the data is poor enough to trigger a response from the RBNZ, although this is lower than it has been in the past few weeks following an interview with RBNZ Governor, Adrian Orr, wherein he appeared relatively relaxed and upbeat about the economy as a whole.
The week ahead in SGD
Singapore dollar continues to trade weaker against the USD, not helped by the Monetary Authority of Singapore’s rather downbeat assessment of the local economy on Friday. The central bank noted that, while the jobs market will remain firm, inflation is unlikely to strengthen as a result and growth may also be limited.
We expect USDSGD to remain in and around the 1.36 level.
Have a great week.