13th February 2017 Market Update
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?? GBP – Despite the lack of economic data last week, Sterling had a positive week, particularly against the euro. This was initiated on Tuesday when MPC Member Forbes stated that if inflation kept gaining momentum, she would be tempted to vote for an interest rate rise. Sterling’s strength was compounded on Friday by significantly better than expected manufacturing production data. This was probably partially stimulated by Sterling’s weakness.
This week inflation figures are released Tuesday, and they are expected to be just short of the target 2%. However if the figure is above expectations, then that could increase the possibility of an interest rate rise. These figures are being followed by average earnings Wednesday, which are expected to be in line with last month’s reading.
?? EUR – The euro weakened last week despite the lack of data. Greece came back in to the spotlight as the EU commission and IMF appeared to disagree over how to restructure Greek debt. Over the past two weeks yields on Greek debt have nearly doubled from 6% to 10% which shows the current risk. This heightened risk weakened the euro. This was further compounded by the current political risk in Europe.
This is once again a quiet week for Europe on the data front, with the only data with the only data on note Germany preliminary GDP figures and CPI data Tuesday.
?? USD – Last week was also a quiet week for the US, with very little data of note being released. The main thing of note was the weakening of consumer sentiment Friday, which weakened the US dollar.
This week is busier for the US with PPI figures being released Tuesday before Yellen testifies to the Senate Banking Committee – any suggestion for when the next US interest rate rise would likely affect the dollar. Wednesday retail sales and inflation figures are also being released, with investors keeping a keen eye on both sets of data – once again Yellen testifies Wednesday. Thursday Philly FED manufacturing figures are being released along with the weekly employment figures, however these pieces of data appear to have less of a market impact.
14.02.16 – CPI y/y.
14.02.16 – German Prelim GBP q/q.
14.02.16 – Core PPI m/m, Fed Chari Yellen Speaks.
Our View: In the short term there could be some further pressure on the euro, with the current political risk in the Netherlands and France. On top of this, there are currently issues resolving Greece’s debt which could weaken the euro further in the short term. However, Article 50 will be triggered in the short term which provides significant risk to Sterling.
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