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G20 Eschews protectionism as UK nears Brexit

G20 Eschews protectionism as UK nears Brexit

GBP
After three consecutive trading day advances, GBPUSD seems to be looking for a stronger catalyst other than USD-weakness to extend its gains further north of the 1.2400 level. The UK currency also found significant support against the single currency as GBPEUR hit the 1.1500 level.

The domestic front stays pretty much unchanged so far, with market participants waiting for Theresa May to finally trigger Article 50. The Pound’s performance over the last five days has been the best since January, especially for GBPUSD, after BoE member Kristin Forbes voted for a rate hike and caught the market by surprise.

The BoE statement, coupled with the imminent start of the Brexit process and the rate hike in the US have all been positively affecting the Pound. Article 50, which formally starts Brexit, is likely to be triggered between March 27 and 30.

Absent releases are seen in the UK docket today, whilst a speech by BoE’s A.Haldane is to be watched later in the evening.

USD

The Greenback remains on the back-foot at the start of a new trading week, with the US Dollar Index (an index of the value of the United States Dollar relative to a basket of foreign currencies) dipping to a five-week low based on last week’s less hawkish Federal reserve (Fed).

Market expectations over the Fed’s short-term monetary policy outlook will continue to be a key driver as spotlight turns to a busy week of Fed speeches with 11 Fed officials scheduled to speak. It should be noted that just three weeks back the odds of a 0.25% rate hike in March were less than 50%. The sudden rise in the rate hike odds was largely due to hawkish talk from the Fed officials.

This indicates that Fed officials could turn their back on last week’s dovish talk and boost rate hike odds and hence the US Dollar. On the contrary, the Dollar index could weaken further if the policy makers stress the need to be cautious with rate hikes.

Today’s economic docket lacks any major fundamental drivers and consequently unlikely to provide an immediate respite for the US Dollar.

EUR

The Euro was unable to hold above 1.0780 against the Dollar on Friday with some selling pressure after the latest French Presidential opinion polls showed that Marine Le Pen leads with 28% in the first round, followed by Macron, with 25%. There was, however, further speculation that the European Central Bank (ECB) could move to an early increase in the deposit rate from -0.40% which helped support the Euro.

The G-20 summit concluded on Saturday with world leaders dropping a decade-long pledge to reject protectionism and replacing it with a light commitment to work on strengthening “the contribution of trade to our economies.” This outcome will likely weigh on the USD, as it indicates Trump’s desire for a weaker Dollar.

Data to watch: 7am German Producer Price Index, Year on Year, Month on Month. 10am Eurozone Labour Cost Q4. 1.30am Chicago Fed National Activity Index. 4.45pm German Buba President Weidmann speech. 5.10pm US Fed’s Evans speech. 6.20pm UK BoE Andy Haldane Speech. 11.50pm US Trump Speech

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