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Crunch week

Crunch week

GBP
EU officials have stated that a transitional deal would not be valid if without a deal on the Irish border issue. The Irish issue will be the main focus of discussion this week in the run-up to the EU summit on Thursday and Friday. Sterling was able to make up further ground against the Euro as the single currency retreated to recent lows near 1.1350 while there was a recovery from dips below 1.3900 against the Dollar before closing near 1.3950.

The Bank of England Financial Policy Committee made no changes to the countercyclical Capital Buffer, although there was a reminder that the current account was increasingly funded by capital inflows, meaning that foreign investor confidence becomes more significant. The latest IHS data recorded the fastest pace of income growth since 2016 which boosted confidence in the growth outlook. Sterling sentiment holds firm on market open, although there was selling interest close to 1.3950 against the Dollar overnight.

USD

The US Dollar fell further over the weekend as the Trump administration continues to be plagued with staff turnover. Donald Trump is looking to replace his National Security Advisor less than a week after firing his Secretary of State, Rex Tillerson.

The Dollar looks vulnerable as metal tariffs continue to worry international markets. The looming threat of a trade war between the US and China and growing frustration within the Eurozone over Trump’s steel and aluminium tariffs are expected to be key topics this week at the G20 meeting. US Treasury Secretary Steven Mnuchin is expected to spend most of his time at the summit defending Trump’s protectionist measures. These measures threaten peaceful trading arrangements between many worldwide trading partners and go against the foundations of the World Trade Organization (WTO); Trump has criticised the WTO in the past.

It seems almost certain the Federal Open Market Committee (FOMC) will raise its targets for short-term interest rates again at the 20-21 March meeting. What is more important for markets are the expected changes to the FOMC’s forecasts for the economy and the trajectory of policy that could lead to a strengthening of the US Dollar.

EUR

The back-end of last week saw the core Eurozone inflation rate for February remain at 1.0%. This was in-line with consensus forecasts as the final Eurozone consumer inflation rate was below expectations at 1.1% from 1.3% in January. Wages saw an increase of 1.7% in the year to the first quarter with a 1.5% increase in unit labour costs.

The data continued to fuel market expectations of a tentative stance surrounding European Central Bank (ECB) monetary policy as the single currency lost out to its peers despite Bundesbank head Weidmann sticking to his belief that the quantitative easing programme should come to an end. The Euro closed the week weaker than it opened; 1.1342 against the Pound and 1.2295 against the Dollar.

It’s a quiet week for the Euro with the exception of the EU summit on Thursday and Friday which will certainly catch the attention of the market.

Data to watch:

13:40 USD FOMC Member Bostic speech
18:00 EUR ECB’s Mersch speech

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