The week ahead in GBP
We have taken to calling this coming week ‘Hell Week’ at WorldFirst. Any time the fate of the UK and the pound are put in the hands of our elected officials, the skies darken and the opportunists, both political and financial, start sharpening their knives.
Hell Week only really begins on Tuesday with a series of votes on Brexit; a ‘meaningful vote’ on the government’s plan on March 12th, a vote on whether the House of Commons supports the UK leaving the EU without a deal on the 13th and whether the UK should seek an extension from the EU on the 14th.
We see it as very unlikely that all votes will fail and we expect the UK to close the week by beginning talks with the EU to sign an extension to the Article 50 process. A vote for a no-deal scenario would see the largest market move – it is the largest political outlier – although one has to think that a majority for the Prime Minister’s deal is a long-shot. Theresa May is not daft enough to tie her position as PM to the passage of the vote and a voting down of her plan would increase calls for another confidence vote and heighten the risk of a general election.
In our central scenario, sterling rallies briefly after Thursday’s vote confirms an extension will be sought before being sold off as both the UK and EU remind everyone that an extension is not a deal and that compromises must be made. A longer extension is largely more positive than a shorter one.
The week ahead in USD
This week is a heavily data-driven week for the USD. The broad investment environment is split on whether the US economy is strong enough to weather any global downturn or is itself set for a slowdown that could take us all with it. Last Friday’s jobs report saw the lowest number of jobs added in a month since 2017 and while that looks like a sign that the US economy is topping out, whether that is good or bad news for the US dollar depends on which side of the fence that you sit. No more jobs for people without wage inflation suggests a weaker dollar with the Federal Reserve on hold, whilst more data that confirms that the US economy is running close to capacity could be enough to get people talking about interest rate hikes once again. Who’d be a currency economist eh?
To me, retail sales and consumer confidence likely bounced back in February. If they have and inflation numbers also show a run higher than this week could easily be a good one for the dollar.
The week ahead in EUR
Optimism is really seeping out of the single currency at the moment and there is little reason to suggest in the short-term that the euro will stop anytime soon. We think that market participants will continue to take on the euro and push it lower given the weak growth fundamentals in Europe and globally. God forbid, Brexit votes do not end positively this week and we could be looking at another swing lower for the currency.
Throw in the political situation in Europe ahead of elections in May, Italian debt risk and the heightening trade antagonism towards Europe from the US and there is little reason to think that this week will be much better than the last.
The week ahead in CNY
Much like in the US, this week is a heavy one for data. The sell-off in the Chinese yuan last week came courtesy of hopes/fears that the People’s Bank of China is getting into a position to cut interest rates in order to supercharge the impact of any fiscal stimulus announced by the Chinese government at the National People’s Congress.
Similarly, Chinese trade data on Friday showed that the Lunar New Year exacerbated a weak trade picture and any numbers this week that show a slowing of industrial production, lending and particularly domestic retail sales is only going to add to the recent negativity for the CNY.
The week ahead in JPY
With every central bank in the world pulling their horns over the past few weeks, there is almost no chance that the Bank of Japan surprise the watching market with anything other than a decision to hold policy as it is at the moment.
Amongst the tidal wave of discouraging to outright bad news in the past few weeks the haven allure of the Japanese yen has increased and it is this strength that is probably the greatest indicator of whether the Bank of Japan decides to loosen policy once more. USDJPY is the currency pair to watch in this regard and we think that should the price come down to 105 on wide, systematic risks increasing, then the Bank of Japan will act. For now, much like the Europeans, Canadians, Australians, Americans, Brits and New Zealanders, they are happy to sit on their hands. Friday’s meeting should pass without event.
The week ahead in AUD and NZD
Both Australian and New Zealand markets are pretty quiet this week and thus we expect both currencies to take their cues from the wider economic and political atmosphere. Heading into this week we can see markets will remain more than happy to express the belief that – especially in Australia – interest rate cuts are likely in the coming months and therefore any upside for the currencies will be sold into rather quickly.
The week ahead in SGD
Singaporean dollar is more of a proxy for global trade than ever at the moment and thus will be watching the global picture more than its own retail sales numbers released on Tuesday. We expect USDSGD to remain happy in its range around the 1.36 mark.
Have a great week.