Global Themes

Brexit news, Pound falls; the week ahead  

  • Sterling in political limbo?  
  • US politics and Fed minutes dominate 
  • Euro set to break new highs?
  • OPEC put commodity currencies on watch


Sterling in political limbo? 

Over the weekend, some polls suggest the Conservatives lead against Labour is narrowing and the result might not be as clear cut as first thought, and Sterling has fallen back below $1.30 against the US dollar and €1.16 against the Euro. 

As always, political uncertainty will usually hurt a currency, and with investors betting on a Conservative win to boost the pound, this change in sentiment and increase in uncertainty could indeed weaken the pound ahead of the general election. Brexit secretary David Davis forecasts Brexit negotiations to be “turbulent” and in fact could turn into “chaos” even threatening to walk away when debating the exit bill. Theresa May speaks today and Philip Hammond on Tuesday which could shed more light on the matter, but could potentially weaken the pound if further concerns are raised.

Light on data from the UK, we have Public Sector net borrowing on Tuesday and revised Q1 GDP at 09:30 Thursday morning. A mixed bag of data last week left Sterling traders arguably confused as inflation rose, average earnings contracted with the unemployment rate, and retail sales skyrocketed. The pound is still vulnerable to Brexit developments, which could determine its direction amid this mixed data.


US politics and Fed minutes dominate 

The US dollar fell and the EUR/USD rate ended the week almost 300 pips up, breaking $1.12, a 7-month high. Given the US dollar index also fell to 7 month lows, focus will be on dollar demand driving further market moves. President Trumps’ politics, and developments surrounding the FBI Comey case will still be in focus.

Traders will also be monitoring the FOMC minutes released at 19:00GMT on Wednesday, as they look for clues about the next interest rate hike. The market implied probability of a rate rise increased above 70% on Friday as FED speaker Bullard announced his support for a June hike. However, more importantly, investors will look for further guidance on future rate hikes for 2017 and if this probability increases (currently 25% chance in Sept/Nov), we could see renewed dollar demand, which may drag GBP/USD back towards $1.28-$1.29. US revised Q1 GDP and durable goods are also due out on Friday at 13:00. 


Euro set to break new highs?

Tuesday is a key day for businesses with Euro exposure, with key focus on German data on GDP and the IFO business survey. Both are forecasted to rise, and this could be the main driving force to keep the Euro elevated. With the German elections starting to gain traction, these data releases will be key in determining Angela Merkel’s chances of keeping her seat as the head of Germany for another term. 

With continued positive data release markets could interpret this as Merkel positive which given her recent comments, such as looking to partner with new French President Macron to unify the EZ again. The GBP/EUR rate continues to be under selling pressure and currently on the cusp of breaking back into the lower regions (€1.16-€1.15) last seen in March 2017.


OPEC put commodity currencies on watch 

A growing number of oil ministers are joining the OPEC deal to extend the production cuts for a further 9 months. The official meeting is on Thursday, so volatility is expected before, during and after which will impact the trading direction of commodity driven currencies such as NOK, CAD, AUD and ZAR. 

It’s worth noting to focus especially on ZAR with an interest rate announcement due on Thursday too. Canada will also decide on interest rates this week. 

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