The week ahead in GBP
With little new news expected from parliament this week ahead of the next ‘meaningful vote’ in the Commons on February 13th/14th, we can’t see sterling having a particularly volatile week. There is little reason to think that the pound will suddenly gain the favour of international investors in the short term while uncertainty hangs in the sky above it like the Sword of Damocles.
The most important event this week for the pound will be Thursday’s Bank of England meeting and the accompanying Quarterly Inflation Report. While no change in rates are forecast for a while, there is unlikely to be much change in the Bank’s economic forecasts either. Much like the political situation, nothing has changed, although one would forgive the Bank for downgrading its growth expectations on the wider global picture and lack of Brexit certainty.
Our expectations remain that interest rates will only rise in the event that the UK manages to secure a deal with the EU or if a suitably long extension to the Article 50 process – a year for example – could be negotiated. Were the UK to exit the EU without a deal then we would expect an interest rate cut amid wider calls for support for the UK economy.
The week ahead in USD
Last week was a strange week for the dollar with any strength evaporating following the Federal Reserve’s meeting and press conference that underlined just how weak the feeling is around the both the US and wider global economies. Certainly in the US’s case this is despite a calendar of strong data points. None typified this more than the payrolls report on Friday that saw another 304,000 people gain employment in January with higher wages also being reported.
How well the dollar can perform in these circumstances however will depend largely on the political atmosphere. President Trump’s delayed State of the Union speech will take place tomorrow night with the funding for his marquee policy of a border wall between the US and Mexico still very much a battleground. Similarly, while no new policy on trade has been announced between the US and China, the noises on the Presidential Twitter feed suggest that he, for now, remains positive on the chances of an agreement.
The week ahead in EUR
The data from the Eurozone remains poor and regardless of how weak the dollar or pound is, the euro is unable to push onwards against them. We expect that to continue this week as well with the majority of the data calendar focusing on trade and manufacturing; two areas in the Eurozone that have not shown much resilience of late.
The Brexit news in Westminster last week hasn’t helped the euro either and further progression towards a no-deal Brexit will undermine the euro as much as the pound.
The week ahead in CNY
China is largely closed this week for the Lunar New Year holiday and so movement in the yuan will largely track the wider global picture.
The week ahead in JPY
The yen has been one of the main beneficiaries of the weakness in the USD with the JPY pushing onwards as investors started to feel greater concerns about the global economy. We expect this to continue in the coming weeks as further news flow continues to show a softening of the global economic picture.
The week ahead in AUD
The Aussie continues to push onwards against the US dollar, something that it may struggle to replicate much longer. This week’s rate decision (Thursday) and policy statement (Friday) are unlikely to shift the market belief that rates are set to stay as is for a long time. There is a risk that the Reserve Bank of Australia’s latest run of economic expectations soften as the central bank further prices in weakness abroad and in commodity markets.
The week ahead in SGD
SGD touched a 7 month high against the USD last week following the Federal Reserve’s meeting on Wednesday. SGD watchers will have to wait to see whether such strength can continue and the majority of the Singaporean economy will be closed this week due to the Chinese New Year celebrations.
Have a great week.