Weekly currency news: Brexit parliamentary vote on Focus
The US dollar surged across the board last week, to test its highest levels in almost two years, buoyed by growing fears about a global economic slowdown, while the pound sterling continues depreciating with the investors awaiting the second parliamentary voting to Theresa May’s Brexit plan.
The euro attempts to pick up from 21-month lows against the dollar, after a sharp decline last week following the ECB’s monetary policy last week. The bank hammered the common currency after cutting the Eurozone growth perspectives and delay interest rate hikes until, at least, next year.
This week the market focus will be on the UK parliament vote on Brexit and the monetary policy meeting, while other indicators like the US retail sales and Consumer Prices Index might also have some impact on currency volatility.
- EUR/USD: picking up from 21-month lows at 1.1180
- GBP/USD: reversal from 1.3350 high extends below 1.3100
- EUR/GBP limited below 0.81600, near mid-term lows
- USD/JPY rallies to two-month highs at 112.00
Main events this week:
The US calendar opens on Monday with the release of January’s retail sales data. Consumption is a key contributor of the US GDP and, in that sense, a strong retail sales reading might confirm the resilience of US economy and support the current dollar uptrend.
On Tuesday, we will be attentive to Fed Chair Powell’s conference. Recent economic reports are showing that US economy remains growing at a solid pace despite the uncertain global scenario and it would be interesting to see whether this has moved the Bank to reconsider their cautious approach to monetary policy. Any sign on that direction would be positive for the dollar.
Also on Tuesday, the US Consumer Prices Index is expected to show that inflation has remained growing at a 1.6% year on year level -down from its 2.9% peak in July-. The impact on the dollar, thus, is expected to be neutral to negative.
On Wednesday, the US Census Bureau will release the Durable Goods Orders, which are expected to have contracted in January. As a leading indicator of industrial activity, a sharper than expected decline in durable orders tend to have a bearish impact on the US dollar.
In the Eurozone, the only event worth mentioning will be the final reading of February’s Consumer Prices Index, which is expected to confirm the 1.5% year on year increase shown in the preliminary estimation. The impact of this event in the euro is likely to be limited.
In the UK, on the most relevant event will be the parliamentary vote on the Brexit. With only some weeks for the Brexit deadline, the result of the vote will determine the withdrawal process and the future relationship between the UK and the EU, thus we can expect this event to have a strong impact on the pound.
Also on Tuesday, National Statistics will release the UK Industrial and Manufacturing production data, although, with the market focus set on the Brexit vote, these indicators are likely to pass unnoticed.
In the Japanese calendar, the most relevant event will be the BoJ monetary policy meeting. The bank is widely expected to maintain interest rates at -0.1% thus the focus will be on Kuroda’s speech, which, in the light of the increasing global uncertainty, might be tilted to the dovish side. If that is the case, we could see some yen weakness.