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With 9 months now passed since the UK’s referendum on EU membership, this week we will finally see the UK government officially notify the EU of its wish to leave the bloc, culminating in the triggering of Article 50 and the point of no return.
While the announcement in itself is likely to provide little reaction, after all, this has been widely expected for weeks, it marks a momentous occasion that could lead to some Sterling strength given the macroeconomic data that has preceded it.
The announcement will be made a week after UK inflation saw a serious spike, with the headline CPI reading surpassing the Bank of England’s 2% target at 2.3% and the Core reading, the BoE’s preferred metric, reaching 2%. This has helped to give Sterling a boost alongside the prospect of Brexit finally beginning, with the currency climbing to its strongest level against the Dollar since early February and the Euro since early March.
This comes amid a backdrop of a weaker US dollar following the 11th hour withdrawal of the Trump administration’s plan to repeal and replace the Obamacare on Friday as Trump, speaker Paul Ryan and senior Republicans failed to on-board a key conservative group.
The ‘Trump trade’ now faces its toughest test since the Donald’s election in November, as investors openly question the President’s ability to push through further reforms. These include the pro-business and pro-market fiscal policies – a proposed $1tn infrastructure spending plan and a range of tax cuts for US businesses and individuals – which are next on the agenda for the US government, although these are seen by many as a much tougher prospect for the administration to push through, much to the concern of markets; especially given the dissipation of support from within their own ranks for removing a controversial piece of legislation that has been firmly in Republican targets for 7 years.
This is also having an impact on the perceived path of US Federal Reserve rate hikes. The raising of interest rates, which normally prompts a bullish reaction in the US dollar, has been met with a muted response so far as Fed members remain cautious in rhetoric about ramping up projections for 2017. With no fewer than 9 Fed speakers scheduled for the week, should we see any reeling in of hawkish rhetoric it could have serious implications for the global reserve currency.
Away from politics and central banks, macroeconomic data also looms large for the US, as the latest Consumer Confidence reading is released on Tuesday, while the third reading of Q4 GDP released on Thursday could see an upward revision of 0.1% to 2% for the quarter, according to forecasts.
Meanwhile European economic data will look to continue the recent trend of positive readings, something that has already been done by German ZEW surveys. This highlights a potential turning point for the Eurozone and the ECB following years of stagnation. Crucial Inflation readings for both the Germany (Thursday) and the headline Economic Area (Friday) could potentially highlight the growing disparity in readings, which may prompt further hawkishness from German central bankers. A reading high enough could result in further talk of both rate hikes and tapering before the end of the year, although this seems highly unlikely given the political elections yet to take place in France and Germany.
Key data this week (Sign up here to get our daily live macro-calendar)
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Intl Economic Announcement
02:30 Industrial Profits (CN)
07:00 Retail Sales (DE)
09:00 IFO surveys (DE)
14:30 Dallas Fed (US)
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UK Economic Announcements
08:30 Nationwide House Prices
Intl Economic Announcements
13:30 Wholesale Sales & Inventories (US)
14:00 S&P House Prices (US)
14:45 PMI Services (US)
15:00 Consumer Confidence, Richmond Fed (US)
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UK Economic Announcements
09:30 Consumer Borrowing, Mortgage Approvals
Intl Economic Announcements
15:00 Pending Home Sales (US)
15:30 Oil Inventories (US)
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Intl Economic Announcements
09:00 Confidence (EZ)
12:00 Inflation (DE)
13:30 GDP (US)
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UK Economic Announcements
00:00 GFK Consumer Confidence, Lloyds Business Barometer
09:30 GDP
Intl Economic Announcements
02:00 PMI Manufacturing & Non-Manuf (CN)
08:55 Unemployment (DE)
10:00 Inflation (EZ)
13:30 Personal Income & Spending (US)
14:45 Chicago PMI (US)
15:00 Consumer Confidence (US)
18:00 Baker Hughes Rig Count (US)
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