The week ahead in GBP
Despite a whole week of debate last week we still have no clearer a picture around how or when the UK will leave the European Union. Sterling rose following the defeat of Theresa May’s deal on Tuesday night; the logic being that the positions within government and parliament will harden against a no-deal Brexit and that pragmatism may be able to bring about either a softer Brexit, a delay to Article 50 or a referendum on the matter in its entirety.
Some of that exuberance has faded out of sterling this morning as it became clear that the government’s Plan B looks a lot like Plan A – almost like one of those makeover shows where nothing changes apart from a new hairstyle and a snappy new wardrobe. Market expectations are now looking for an extension of Article 50 and so anything that drags reality towards a no-deal scenario or a harder Brexit than has already been posited by the government will be sterling negative. We have recently turned optimistic on the pound but the political situation and a ticking clock mean that another slide lower cannot be entirely counted out.
Structural data matters little at the moment but tomorrow’s labour market data has the opportunity to upset things especially if the wage picture disappoints following last week’s soft inflation figures.
The week ahead in USD
The US government remains shut down this morning entering the fifth week of a stand-off between the Trump administration and Congress over funding for his border wall between the US and Mexico. Analysts last week put the cost of the government shutdown as 0.05% of GDP per week and so we are starting to get to a point wherein the posturing of the Trump administration is starting to negatively affect the US economy. Consumer confidence numbers released last week showed that confidence is starting to feel the pressure.
Despite the negativity around the US economy and the political risk, the USD was the second best performing currency last week – just behind sterling – and had markets not have focused on the dovish noises from the Federal Reserve, the greenback would be flying higher. Positive growth surprises in the US data could see the USD fight back even further this week.
The week ahead in EUR
The European Central Bank monetary policy meeting and decision this week is the most important central bank news of the upcoming week, although we have to think that there will be little market reaction. Market consensus is that the tone of language used by ECB President Mario Draghi to describe the European economy will be more dovish than in December, matching the softer tone seen last week. This could continue the EUR’s slow start to the year.
The week ahead in CNY
China dumped a load of data in our laps this morning with the publication of the latest GDP report, confirming a slowing in growth to a 30 year low. This is not a surprise and moves by the authorities last week confirming additional stimulus measures laid the groundwork for a week number. How quickly China rebounds will depend on how quickly stimulus measures are enforced and whether a wider deal on trade can be struck with the United States.
USDCNY is currently trading towards the bottom of its range and we can see investors wanting to take the currency on in a climate of weaker data and increased stimulus.
The week ahead in JPY
We are continuing to look for the yen to strengthen on weaker global economic fundamentals and the chances that Fed speakers maintain their current thoughts on the US economy for a little while longer. This week’s monetary policy meeting at the Bank of Japan is unlikely to see things change much with an increased focus likely on global growth uncertainty. The meeting takes place this Wednesday morning.
The week ahead in AUD
This week’s unemployment data should keep the AUD quiet with more global concerns remaining the main drivers of the Aussie’s recent performance. If our early thoughts of an AUD drive higher are to be realised then we will be looking for next week’s inflation number to be supported by a strong commitment to rate hikes from the Reserve Bank of Australia in February. There is a lot more to come from the AUD this year but for now, we see it remaining quiet.
The week ahead in SGD
Weaker Chinese data and a poor outlook on South Korean trade have taken some of the shine off currencies that need global trade growth and that means a weaker Singaporean dollar. Wednesday’s inflation number also has the ability to push the SGD lower on the week.
Have a great week.