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BREXIT TO SET TONE FOR POUND IN 2016?

BREXIT TO SET TONE FOR POUND IN 2016?

As the US has been the first major economy to hike rates, the Federal Open Market Committee’s (FOMC) December minutes will be carefully watched this evening, with the markets expecting some form of indication of the path of rate rises for 2016. Janet Yellen and co. have previously hinted that there could be four increases to the baseline rate for the year.

The Dollar continues to print fresh highs against both Euro and Sterling. The continued volatility in China has also led to investors fleeing to the Dollar’s safety. Trade balance, ISM non-manufacturing PMI and Markit PMI for the US are also out this afternoon, so expect more Dollar movement.

The Pound has continued to lose ground against the Dollar as the markets’ fear of a ‘Brexit’ intensified after David Cameron said he’ll allow ministers to campaign for the EU exit. As the Brexit issue raises a fairly big question about Britain’s EU future, and it’s unlikely to be resolved soon, this will be a “millstone around the neck” for Sterling. UK Services PMI which will be issued this morning could further extend the Pounds losses with a bearish reading.

Inflation in the Eurozone remained at 0.2% in December, unchanged from November and less than the forecasted 0.3%.

The tensions escalating in the Middle East have increased uncertainty, but the effect on oil prices is not clear cut. The strain between Saudi Arabia and Iran will likely keep OPEC’s ability to coordinate a cut to production in check.

Data to watch: FOMC Minutes 19:00, ISM Non-Manufacturing, Markit PMI Services for the US 14:45, GBP Services PMI 9:30am.

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