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Inflationary tailwinds to give impetus to Europe exit

Inflationary tailwinds to give impetus to Europe exit

The Pound had a miserable weekend, falling 1.2% as soon as the Asian session started. Prime Minister May’s speech today has caused speculation that the UK intends to leave the single market in order to gain full control over immigration, causing a Sterling selloff.

The Pound did find support around 1.2000 against the Dollar after Bank of England Governor Carney reiterated that the Monetary Policy Committee (MPC) would maintain a neutral stance in the short term to balance the growth and inflation trade-off. The inflation data, released this morning, will be watched closely as well to assess whether there will be additional pressure to move towards policy tightening to combat higher inflation.

The Eurozone trade surplus increased to EUR 22.7bn in December from the previous month’s EUR 19.9bn as imports and exports rose by 5% and 6% respectively over the year. The data suggests a strengthening in the Eurozone trade outlook which will underpin growth and should put structural upward pressure on the Euro due to the substantial trade surplus.

The Dollar lost ground against the Euro in the early hours of this morning as a result of reduced liquidity caused by the US Bank Holiday and position adjustments ahead of Trump’s inauguration on Friday. Comments from Fed speakers will be monitored closely today for any further hints surrounding interest rate moves. Governor Brainard’s comments will be particularly important given her notably dovish policy stance during 2016. Further dovish signals would signal increased divisions within the Federal Open Market Committee.

The European calendar ahead is expected to be eventful, with the UK CPI report to kick-start an action-packed session, which will be followed by ZEW economic sentiment for the Eurozone and Germany. UK PM May’s speech pointing to a ‘clean Brexit’ is scheduled for late morning, and will hog the limelight today.

Data to watch: 9.30 UK Consumer Price Index and Core, Retail Price Index, Producer Price Index, Input & Output. 10am EUR German ZEW Survey Current Situation & Economic Sentiment. 11.45am Theresa May speaks.

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