Weekly Forecast Feb 13
Below are the events expected in the following week, and our take on currency movements:
US economic trends and the potential Federal Reserve policy response will tend to dominate the week ahead.
Federal Reserve Chair Yellen will testify to Congress on the semi-annual Monetary Policy Report. She will appear before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
Yellen will deliver a prepared text and then face questions from congressional members. Commentary on the economic outlook and likely developments in monetary policy will be an extremely important focus. Remarks on fiscal policy and any potential Fed response to tax cuts will also be watched very closely.
There are also a series of important US data releases during the week with consumer prices and retail sales data due on Wednesday. A stronger than expected CPI report would increase pressure for the Fed to consider an early monetary tightening while benign data would continue to dampen any talk of a March rate hike. US retail sales data is also due for release on the same day.
US politics will never be far from the headlines as President Trump’s economic and security policies remain under scrutiny with markets looking for further clues on potential tax proposals.
The Administration’s dollar policy is likely to be particularly important for the week ahead, especially if Trump’s Treasury Secretary Nominee Mnuchin is confirmed by the Senate. Once he is confirmed, markets will expect greater clarity on the US stance towards trade and the currency.
This will be an important week for UK data releases with most attention likely to focus on Tuesday’s inflation data. The annual CPI inflation rate increased to 1.6% last month from 1.2% and there is a very high probability that the annual rate will move significantly higher again for January, especially as prices fell in January 2016. The core data will also be released and the PPI data will also be important in judging underlying pressure.
The labour-market data will be watched very closely on Wednesday with a particular focus on average earnings. January’s retail sales data is due for release on Friday after the sharp decline seen for December.
Euro-zone economic data releases are unlikely to have a major impact, but political and financial developments will remain an important focus throughout the week.
Tensions surrounding Greek debt will remain important ahead of a crucial Eurogroup meeting the following week and drama surrounding the French Presidential election will also have a significant impact.
Japanese GDP data on Monday will be followed by Chinese inflation data on Tuesday, although US trade policies are likely to have a greater impact on Asian currencies.
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