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Article 50 and a US rate hike this week?

Article 50 and a US rate hike this week?

GBP
Sterling suffered across the board on Friday after UK industrial production declined 0.4% and manufacturing output declined 0.9% in January, following growth in both areas last month. The data suggested underlying growth within manufacturing and, although there was only a slight decline in the January trade deficit to GBP10.8bn from GBP10.9bn previously, there was a net improvement in exports which will help underpin the economy.

The NIESR GDP estimate recorded 0.6% growth in the three months to February from 0.8% previously. This still implies solid underlying growth but there was evidence of a weaker tone in consumer spending. There was a marked increase in speculative short Pound positions increasing the risk of a short squeeze if sentiment shifts. Sterling was unable to regain the 1.2200 level against the Dollar and the Euro strengthened to fresh seven-week highs near 1.1390.

Parliament votes today on the EU Withdrawal Bill and if MP’s reject the amendments recommended by the Lords this could mean that the Act is invoked as soon as tomorrow, allowing Theresa May to start Brexit negotiations.

USD

The US Nonfarm payrolls surged past the expected 195k, coming at 235k for February and the January increase was revised up by 11k. Unemployment declined to 4.7% from 4.8% and, although the headline increase in average earnings was below consensus expectations at 0.1%, the year-on-year rate was in line with expectations at 2.8% as the January data was revised higher.

The jobs data supported the case for a March rate hike, already priced-in at 80% probability, but the earnings data dampened expectations of fast-paced tightening. The market will now focus on “how many rate hikes?” and Janet Yellen’s rhetoric in Wednesday’s press conference.

EUR

Late on Friday there was some speculation that the European Central Bank (ECB) had discussed the possibility of raising interest rates before completing the government bond-purchasing programme. Although the comments may have only limited implications there was further Euro buying, causing an advance to the 1.0700 area against the Dollar. Mario Draghi and other members of the ECB have speeches this week but the attention will be on Wednesday’s Dutch election.

CNY

China’s Yuan strengthened against the Dollar on Sunday during Asian trading hours as the Greenback (USD) slid in global markets and as traders awaited further comments from Chinese policymakers at the annual session of Parliament. The People’s Bank of China set the midpoint rate at 6.8988 per Dollar prior to market open, 135 pips stronger than the previous fix of 6.9123.

Data to watch: 1.30pm EUR Draghi speech. 3pm US Labour Market Conditions Index.

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