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Fed to be remade in Trump’s image?

Fed to be remade in Trump’s image?

Whilst not making much headway against the Dollar yesterday, the Pound did manage to slowly gain on the Euro, reaching a peak of 1.1820 just before midnight. Visa released data showing that UK consumer spending slowed considerably to 0.4% in January from 2.5% in December. This maintained expectations that underlying consumer spending will slow during 2017.

The latest UK consumer inflation releases will be key for Sterling traders today. Any figure matching or beating the Bank of England’s 2% target will increase speculation that UK interest rates could be hiked sooner than expected, boosting the Pound. A lower than expected reading would dampen expectations surrounding the need for higher interest rates.

Even Brussels is downgrading their Brexit fears with the EU Commission revising its Eurozone GDP forecast for 2017 marginally higher to 1.6% from 1.5% previously. The inflation forecast for this year was revised higher to 1.7% from 1.4% previously, but with an expected slowdown to 1.4% in 2018.

In the US, Dallas Fed President Kaplan stated that the Fed should raise interest rates again sooner rather than later with rates increasing in a gradual and patient manner. The market awaits Fed Chair Janet Yellen’s testimony before the Senate Banking Committee today at 3pm GMT. Since December when the Fed raised interest rates by 0.25%, Chair Yellen has not featured prominently and markets are currently putting the chances of a March interest rate increase at around 22%. Any hints of a March hike would provide further net Dollar support.

It is no secret that Trump wants to change the way the Fed operates and given the resignation of members such as Daniel Tarullo, one of the toughest regulators on the Fed board, he might get a chance to remake the Fed sooner rather than later. Investors will also be looking for how Chair Yellen addresses questions targeting changes in financial regulation that include the future of the Fed.

Data to watch: 7am EUR German Q4 GDP, Year on Year and Month on Month. German Consumer Price Index & Harmonised CPI. 9.30am UK Producer Price Index Input & Output. PPI Core Output. Consumer Price Index & Core CPI. 10am German ZEW Survey Economic Sentiment & Current Situation. Eurozone Q4 Gross Domestic Product, Industrial Production & ZEW Survey Economic Sentiment. 3pm US Yellen Speech & Monetary Policy Report.

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