Sterling Stripped to “Flash Crash” Levels Ahead of Theresa May’s Speech
Most of today’s morning action revolves around the Pound, after weekend reports suggested that the British Prime Minister (PM), Theresa May will signal the intention of a “Hard Brexit” in her speech tomorrow. Later today, the Bank of England (BoE) Governor, Mark Carney delivers his first speech of 2017. Meanwhile in the Eurozone, investors await the region’s trade balance figures for November. The US markets are closed today on account of Martin Luther King's Birthday.
This Friday, all eyes will be on the newly elected US President, Donald Trump’s inauguration ceremony. Also, the US Labour Department will release consumer prices data and the Federal Reserve (Fed) Chairwoman, Janet Yellen, is scheduled to make two separate appearances. Separately, the European Central Bank (ECB) will hold its monetary policy meeting and the World Economic Forum’s 3-day annual meet is scheduled at Davos this week.
Pound Sterling – UK Markets
The Pound has kicked off the week on a weaker footing against the greenback and dropped to the crucial 1.20 mark this morning. The currency has touched the lowest level since the Pound’s “flash crash” in October amid rising concerns that the UK Government led by PM Theresa May is headed for a “Hard Brexit”. The PM is scheduled to give a speech tomorrow, laying out her Brexit plans for the upcoming negotiation with Brussels. Investors expect that Ms. May’s Brexit approach will suggest UK’s complete exit from the European Union’s single market to take back control of its borders. Meanwhile, Brexit minister, David Davis, stated that UK will consider ways for a smoother exit when it leaves the EU. On the economic front, data indicated that Rightmove house prices rebounded in January.
Today, the BoE Governor, Mark Carney is scheduled to speak in a few hours and UK’s data calendar remains devoid of any other major economic releases.
US Dollar – US Markets
The greenback kick-started this week on a stronger footing against Sterling and the Euro. The US economic calendar is bereft of data today, as the nation’s financial markets will remain closed on account of a holiday for Martin Luther King’s Birthday. Ahead in the week, investors look forward to the newly elected, Donald Trump’s inauguration as the 45th President of the United States in a grand ceremony at the US Capitol Building in Washington DC.
On Friday, the US Dollar ended weaker across the board. Macroeconomic data showed that the US retail sales advanced for December, amid strong demand for automobiles. However, the gain was less than market expectations. In other economic news, preliminary reading of the US Reuters/Michigan consumer sentiment index unexpectedly edged down in January, after notching a 12-year high level in the previous month. Meanwhile, the US Labour Department reported that the nation’s producer price index rose in line with analysts’ estimates in December. The increase in producer prices was mainly due to a jump in energy prices.
Euro – European Markets
The shared currency is trading lower against the US Dollar and higher against the Pound this morning. Earlier in the session, the Italian National Institute of Statistics showed that the nation’s consumer prices advanced in December. Ahead today, market participants will keep a close tab on the Eurozone’s trade balance data for November, scheduled in a short while. Going forward this week, the ECB’s interest rate decision along with the Euro area’s inflation data for December will garner attention. While the ECB isn’t expected to alter the monetary policy in its first meeting of 2017, market participants will be looking out for hints of whether the bank is considering winding down or tapering its asset purchase programme.
The Euro ended higher against its American peer on Friday, extending its gains for the third consecutive session. The currency derived its strength from the German wholesale price index which registered a robust growth for December, suggesting an improved economic outlook in 4Q 2016.
Other Currencies – Highlights
The Japanese Yen is trading higher against the US Dollar this morning. Data released by the Ministry of Economy, Trade and Industry indicated that Japan’s tertiary industry activity index advanced in November. Additionally, the flash machine tool orders strongly rebounded on an annual basis in December. Further, overnight data released by the Cabinet Office showed that Japan’s core machinery orders sharply dropped in November, amid a fall in orders from chemicals makers, oil refiners and the transport sector. Japanese firms might be deferring capital expenditure amid uncertainty over the incoming Trump Administration's trade policies.
This week, Japan’s economic calendar features the release of industrial production and capacity utilisation data. The nation’s final print for industrial production in November is likely to rebound from its October reading and come in line with initial estimates. Amid lack of other economic releases in Japan, investors will shift attention to speeches by key Fed officials along with Fed Chairwoman, Janet Yellen for trading in the US Dollar- Japanese Yen currency pair.