The week ahead in GBP
With the politicians returning to Westminster this week ahead of next week’s vote on the PM’s Brexit deal, it will be difficult to keep Brexit out of the headlines and sterling out of the crosshairs. If you think that the conversation has not been meaningfully advanced since the Commons went on recess then you would be correct and so we will be debating the same things before the vote; the backstop, the World Trade Organisation terms, and what happens when Theresa May’s deal is thrown on the scrapheap.
For GBP, as long as the spectre of a no-deal Brexit remains – i.e. the UK leaving on March 29th without an agreement with the European Union – then gains will be very hard to come by. Regardless of how strong any economic data released this week is, it will pale into insignificance if the tone of the government’s conversation shifts to a no-deal Brexit as the preferred option.
GBPUSD remains in a range of 1.25 to 1.28 and we expect that to continue this week.
The week ahead in USD
US economic data is telling multiple stories at the moment. Backwards-looking data like last week’s job numbers show a US economy that is strong, creating jobs, paying higher wages and stable enough to withstand further increases in interest rates. Forward-looking data like last week’s manufacturing ISM sentiment numbers show an economy that is slowing from a sugar high brought about by President Trump’s tax cuts and starting to feel the effects of the trade war with China.
At the moment, alongside some soothing words from the Federal Reserve, the dollar is choosing to believe the backwards-looking data but this can all change very quickly, especially amongst an atmosphere of political upheaval as those elected in last year’s Midterms take their places and a government shutdown.
The week ahead in EUR
We’re optimistic on the European single currency in 2019 although acknowledge that it may take a few months for the euro to get its act together. January and the whole of Q1 will see the euro battle both concerns over a no-deal Brexit and pressures on the global trade from the US and China.
The week’s data calendar is quiet ahead of next week’s inflation numbers.
The week ahead in CNY
The People’s Bank of China kicked off in 2019 with a cut to its Reserve Requirement Ratio allowing banks to hold less money in reserves, and therefore offer more credit to the Chinese economy. This has been a common move by the Chinese authorities to try and stimulate more demand and will likely be replicated again as we go through the year alongside interest rate cuts.
Chinese data is looking rocky at the moment – where isn’t?- and greater fears over the state of the world’s second-largest economy will weigh on the yuan. This week we receive inflation and loan data from China.
The week ahead in JPY
The Japanese yen has had a busy start to 2019 already with a flash crash in the early hours of Jan 3rd. The yen rose by over 8% at one point as analysts pointed to any of three reasons why such a market dislocation may have occurred. While JPY has not returned to pre-flash crash levels yet, increases in liquidity as everyone returns to their desks may make the yen volatile both upwards and downwards.
Over the longer term, we think that the yen will continue to remain in favour as a haven from concerns over global growth and Chinese debt/trade issues.
The week ahead in AUD
December was a tough month for the AUD as global growth concerns, such as those emanating from the Chinese economy, increased. Despite a weaker USD, the AUD has not been able to take advantage and therefore enters 2019 weakened.
This week’s retail sales numbers, due Friday morning, may be able to stem the tide but we will likely need to see a positive change in the wider macroeconomic mood before the AUD can drive higher.
The week ahead in SGD
The conciliatory tone offered by the Federal Reserve Chairman last week in a speech helped USDSGD down to a six month low. We will be watching the tone and content of the US/China trade talks for further clues on where the SGD goes from here.
Have a great week.