20th February 2017 Market Update
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?? GBP – There was only two sets of key data out of the UK last week, both of which disappointed markets. Firstly, inflation fell short of the uptick expected, only rising to 1.8% instead of 1.9%. The second set of data was retail sales, which fell considerably in January to 1.5% from 4.1% in December.
As a result, the pound finished broadly lower.
?? EUR – On the economic docket, preliminary growth figures for the fourth quarter fell short of the 1.8% expected, falling to 1.7%.
Politically, concerns rose that the French left could unite behind one candidate in the upcoming elections, possibly knocking centrist and right nominees out of the race in the first round. The potential alliance could increase the chances of anti European Union, Marine Le Pen winning the presidency in the second round runoff.
As a result, the euro dropped off across the board throughout the course of the week.
?? USD – Dollar demand was back on the rise again following a deluge of good economic data throughout the course of the week.
On Tuesday, Fed Chair Janet Yellen said in a testimony to the US Senate that the Fed is on course to raise interest rates at one of its forthcoming meetings. Dollar demand was then further enhanced the following day after retail sales and inflation both exceeded expectations, rising to 0.4% and 2.5% respectively.
22/02/17: 9.30am – Fourth quarter growth figures expected to remain at 2.2%.
21/02/17: 2.45pm – Markit Manufacturing and Services PMI – Expected to go higher to 55.2 and 55.7, respectively.
22/02/17: 7.00pm – FOMC Minutes.
24/02/17: 3.00pm – New Home Sales.
21/02/17: 9.00am – Markit Manufacturing – Expcted to drop maginally to 55.
21/02/17: 9.00am – Markit Services – Expected to stay in at 53.7.
22/02/17: 10.00am – Inflation Forecasted to remain at 1.8%.
24/02/17: 1.30pm – Inflation expected to increase to 1.8%.
Our View: The US dollar is very much back in fashion, following a good run of data last week. Of keen interest this week will be Fed minutes on Wednesday to see where the central bank stands in respect of its next rate hike. Markets are currently pricing in a 70% rate hike in June so any mention of earlier rate hike could bolster the US dollar further.
Sterling focus will be on the preliminary growth figures for the last quarter of 2016. No change is expected here from the previous forecast, so the data might not cause much movement.
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