Last week was pretty underwhelming as the Prime Minister is still yet to form her Government, and it seems Brexit negotiations have started pretty smoothly (Not sure how long it will last though!).
Only a week ago, the Conservative Party said that if Theresa May went for a “Soft Brexit” then they will “Oust” her as the leader. After reviewing how negotiations seem to have started, it seems that the PM will be looking to guarantee EU citizens rights in the UK if they have been in the UK for at least 5 years, and look for a free trade deal with Europe (This all sounds like a Soft Brexit to me!) As I mentioned last week, we will see headlines about Brexit non-stop for at least 2 years, so it’s best not to get too caught up in them, though the market is sensitive, it is waiting for a result, until then we will remain rangebound.
Another confusing element to this past week was the Bank of England and their interest rate hike comments, it seems some members are bullish on a rate hike, the Governor seems adamant that one will not happen this year (This weakened the Pound), and though this doesn’t help the Pound, rates staying low for now definitely helps the economy.
Though the BoE is expecting inflation to rise above 3%, it seems they will have to do an interest rate hike to curb this inflation, but as I have said before, this will most probably lead to a recession in the UK within the next 5 years.
Onto this week now, there is quite a lot of data that could possibly affect the market, now I know everyone is banking on a Government being formed by Thursday, but at this point let’s just wait and see what happens, hopefully, they do, but I am not expecting Sterling exchange rates to shoot through the roof because of it, in fact we have enough data this week anyway to contribute to market movement that our political situation in the UK will be on the back burner.
Monday
- ECB Forum- Mario Draghi of the ECB, Mark Carney of the BoE and Kuroda of the BoJ will all make speeches, anything they say in regards to world economies could affect exchange rates.
- USD Durable Goods Orders- This data is expected positive and could strengthen the Dollar if it comes out as expected.
Tuesday
- Mark Carney speaks at Financial Stability Report Press Conference- Again, any central bank speech is always held to high importance, anything said about interest rates or Brexit affecting the UK Economy could affect exchange rates.
- USD Consumer Confidence- This data is expected to be weaker than last month, so could potentially weaken the Dollar if it comes out this way.
Wednesday
- USD Trade Balance- this is expected narrower than last month, a better balance sheet for the U.S will mean a stronger U.S Dollar.
Thursday
- German CPI (Inflation) This is expected lower than last month, and as Germany makes up for 40% of the European economy, this could weaken the Euro.
- U.S GDP- This is expected to remain on par with last month’s figures, as long as it remains this way we are not expecting movement.
- Theresa May expected to form Government (Could strengthen Pound)
Friday
- German Unemployment- Expected worse than last month- if so means weakness for the Euro
- UK GDP- Expected to remain on par with last month’s figures, any change will result in market movement
As you can see, we are back to normal with economic figures, and alongside politics, this is what will be moving the markets this week. If you have a particular currency pair you have further questions on or require further analysis, please don’t hesitate to contact us directly.