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Dollar gains despite bank holiday

Dollar gains despite bank holiday

GBP
Brexit negotiator David Davis, yesterday in speeches in Paris and Madrid, stated how the UK is confident a good deal can be negotiated, maintaining workers’ rights and environmental protections. The markets continued to monitor Brexit rhetoric closely and will follow through to today with Davis due to make a keynote speech today.

The UK currency drifted weaker yesterday closing at 1.3940, driven primarily under the influence of a firmer Dollar. Underlying political tensions continued to have a negative impact. Further, a lack of comments on monetary policy from Bank of England Governor Carney enabled the Euro to hold below the 1.1300 level.

Markets will look ahead to economic releases this week. In particular, labour data out Wednesday will have a focus on the average earnings element for evidence on likely inflation trends. May rate hikes are estimated around 75%.

USD

The Greenback, tracked by the US Dollar Index, is trading on positive ground for the third consecutive session today and is looking to consolidate on gains seen over the past week.

The Dollar continues to recover part of last week’s sharp sell-off against the backdrop of a softer tone, particularly around EUR, GBP and JPY. The upward move in the Buck has followed the recovery in yields of the key US 10-year which hit multi-year peaks recorded last week.

The market will look for extra details on the prospects of further tightening by the Federal Reserve (Fed) throughout the year in tomorrow’s FOMC minutes, while attention should also be on Fed speakers ahead in the week: Kashkari, Quarles, Dudley, Kaplan (Thursday), Mester, and Williams (Friday).

EUR

Positive signs were a result of the Bundesbank monthly report yesterday. Strong industrial orders indicate a strong economy, ensuring rapid growth would continue while recent market rate rises were in part due to the European Central Bank (ECB) minutes from December. Further, the Bank stated how property prices had been overestimated by as much as 35% in major German cities. Although calls will be made for tighter risk mitigation policies to help control asset prices, tighter monetary policy will be a hot topic of conversation.

In terms of the non-economic agenda, ECB officials’ comments will be closely adhered to in the build-up to March’s policy meeting. At the Eurogroup meeting, it has now been confirmed that Spanish Finance Minister de Guindos was endorsed as the next ECB vice president. De Guindos’ appointment supported speculation that he would push for a more dovish outlook with a loose monetary policy mentality. Further, speculation rose that the next ECB President could be German which provided an element of Euro support.

Underlying concerns still reside surrounding the German political situation as there are doubts as to whether the SPD party membership will back a coalition deal with the CDU.

Data to Watch:

07:00 EUR Producer Price Index (MoM) (Jan)
07:00 EUR Producer Price Index (YoY) (Jan)
10:00 EUR ZEW Survey – Economic Sentiment (Feb)
10:00 EUR ZEW Survey – Current Situation (Feb)
10:00 EUR ZEW Survey – Economic Sentiment (Feb)
15:00 EUR Consumer Confidence (Feb)

 

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