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Leadership challenge raised again

Leadership challenge raised again

GBP
The first UK GDP reading showed expansion of 0.5% in Q4 2017, compared with consensus forecasts of 0.4%. Bank of England Governor Carney stated that the negative impact of Brexit uncertainty held annual growth at 1.5% and if it weren’t for that it would have been significantly higher. Sterling briefly gained ground following the data release, although Dollar weakness still dominated in choppy trading conditions.

The Pound secured the sharpest weekly gain since June 2012 later on in US trading, despite a correction and a weaker trade-weighted tone. The Euro strengthened, back to the 1.1390 area, as concerns over UK government splits unsettled Sterling. The latest CFTC data recorded an increase in “long Sterling” positions to the highest level for over three years which will maintain the potential for a significant correction, especially if political concerns intensify.

There was little overall change on market open this morning, but there were some concerns that higher US and German yields would undermine support. Domestic political tensions also persisted with media outlets reporting a leadership challenge to Prime Minister May and some calls for Chancellor Philip Hammond to be sacked.

USD

The Dollar entered calmer waters on Friday. US president Trump’s address at the World Economic Forum on Friday brought little news on international trade or for the Dollar. US data, including Q4 GDP were OK but failed to inspire trading. EURUSD drifted back lower towards the 1.24 figure.

US spending and income data will be published today. The data are less relevant for markets as the US Q4 GDP report is already published. We also look forward to US president Trump’s State of the Union and Fed’s policy decision on Wednesday and to the early month US economic data, including the payrolls on Friday.

The Dollar decline slowed at the end of last week. This process can continue going into the Federal Reserve meeting. A modest USD comeback is possible if the Fed turns more optimistic and the US data remain strong.

EUR

There was no European economic data of note on Friday, but CFTC data recorded “Euro longs” at a fresh record high which will maintain the possibility of a sharp correction if sentiment shifts. Over the weekend, European Central Bank (ECB) member Knot stated that bond purchases should end in September, as soon as it has fulfilled its purpose, with underlying data making it difficult to sustain dovish rhetoric.

ECB’s chief economist Peter Praet is giving a speech at the Council of the European Union today in Brussels at 10:00 GMT.

Data To Watch:
10:00 EUR ECB’s Praet Speech
10:45 EUR ECB’s Lautenschläger Speech
13:30 USD Personal Consumption Expenditures – Price Index (YoY) (MoM) (Dec)
13:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (YoY) (Dec)
13:30 USD Personal Income (MoM) (Dec)
13:30 USD Personal Spending (Dec)
15:30 USD Dallas Fed Manufacturing Business Index (Jan)
16:00 EUR ECB Cœuré Speech

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