Possibly 48 hours until the launch of the good ship Brexit
Sterling experienced month-end selling pressure yesterday which combined with a more fragile risk appetite to cause a fresh retreat towards 1.2500 against the Dollar and 1.1765 against the Euro. UK consumer confidence, whilst still negative, improved to -5 for January from -7 previously, although there were still underlying concerns that consumer spending would slow during 2017. Positioning will continue to have an important impact today. There will also be a growing focus on Thursday’s Bank of England meeting and inflation report.
Today, parliament will start the two day debate on the Brexit Bill, which could have a significant impact on Sterling sentiment. MP’s will vote on enacting Article 50 on Wednesday and we’ll also find out whether March 9th will be the day that we hand in our notice to the EU.
German inflation figures disappointed as consumer prices fell 0.6% for January. The year-on-year rate still managed some growth at 1.9% up from 1.7%, the highest rate for over three years, although the market had expected 2.0%.
There were also comments from European Central Bank (ECB) member Nowotny. He stated that there would be a potential policy discussion at the June meeting, although he also added that even then the bond-purchase programme was likely to be maintained beyond mid-year. The comments put downward pressure on the Euro which retreated to lows near 1.0620 against the Dollar on expectations of an expansionary policy continuing.
The US core PCE inflation rate was held at 1.7% for December, still below the Fed’s inflation target of 2.0%. This will tend to bolster the case put forth by Federal Reserve doves that there should be only a very slow pace of tightening.
The release of Chicago PMI and Conference Board’s Consumer Confidence Index for January might provide some stimulus for price action. In absence of any major economic releases from UK, GBPUSD remains at the mercy of the US Dollar price dynamics and Trump jitters.
The US markets are waiting to see which parts of financial regulation will be eliminated by the President; Trump has said that companies cannot get the finance they need because of the rules laid out in the Dodd-Frank bill signed by President Obama in 2010. Trump plans to strike it down with another executive order.
Data to watch: 9am EUR German Unemployment Rate & Change. 9.30 UK Consumer Credit & Mortgage Approvals. 10am EUR Q4 GDP, Unemployment Rate, Consumer Price Index. 2pm S&P Case-Schiller Home Price Index. 2.45pm Chicago PMI. 3pm Consumer Confidence.