Has Brexit bitten yet, or did we keep calm and carry on?
The Pound’s rally continues as investors expect a bigger role for parliament in Brexit preparations, triggering a short squeeze (buying a currency to cancel bets that the price was going to fall). Theresa May has also agreed to publish a white paper detailing the government’s Brexit intentions. The Pound reached 1.2603 against the Dollar by the time the European market shut, and 1.1735 against the Euro.
The Office for National Statistics will release its first estimate of Q4 GDP growth, and of growth for the full year of 2016. The UK economy is expected to have grown 0.5% month-on-month and 2.1% year-on-year. An upward surprise is unlikely given the loss of momentum in retail sales at the end of the year. The report might be slightly negative for Sterling, but we expect focus for trading to remain on politics/Brexit.
The US Dollar extended its recent decline against a basket of currencies this morning and dropped to its lowest point in the last seven weeks. This was amid persistent worries over the US President Donald Trump’s protectionist stance after he ordered construction of a US-Mexican border wall and prepared to impose some immigration curbs.
GBPUSD rallied to a six week highs, peaking at 1.2638 (after the European market closed) based on Sterling strength. Trade talks between UK PM Theresa May and U.S. President Donald Trump are set to start today.
German IFO Business Confidence dipped to four-month lows of 109.8, mainly due to deterioration in expectations. The Current Situation Index actually strengthened further on the month with companies still optimistic over the economic outlook.
German bond yields strengthened to the highest level for over 12 months, providing some price support to the Euro amid further speculation that the European Central Bank (ECB) would push towards a tapering of bond purchases. The latest German inflation data will be an important focus next week; comments from the Bundesbank will be watched closely.
Data to watch: 7am Eur German Gfk Confidence Survey. German Buba President Weidmann Speech. 9.30am UK Q4 Gross Domestic Product. 1.30pm Initial Jobless Claims. 2.45pm US Chicago Fed National Activity Index. Markit Services & Composite PMI. 3pm CB Leading Indicator, New Home Sales & Change.