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Market News – 30 January 2017

A data heavy week this week, including ‘Super Thursday’ from the Bank of England along with interest rate decisions from the Bank of Japan and the Federal Reserve in the US. Governor Carney is likely to stick to his neutral stance on whether to cut interest rates in the short term, mainly due to the uncertainty surrounding the impact of Brexit.

GBP

Sterling hit a six-week high against the US Dollar last week after investors focused on the positive growth figures of our economy, rather than Brexit negotiations. January’s consumer confidence figures showed its biggest monthly gain since August, demonstrating that the economy remains resilient since last year’s Brexit vote.

The Pound has managed to gain over 4% against the US Dollar in the last fortnight. ‘Super Thursday’ later this week will provide us with an insight into the Bank of England’s thoughts, along with the interest rate decision and quarterly inflation report.

Theresa May has been forced to make a swift U-turn regarding Donald Trump’s ban on refugees from Muslim majority countries. A statement at midnight was issued stating that she did not agree with the policy.

The British prime minister said she would appeal to the US if the ban affected British citizens. “We do not agree with this kind of approach and it is not one we will be taking,” she said.

EUR

A report by the Centre for European Economic Research, the Eurozone ZEW Indicator of Economic Sentiment improved significantly in January 2017 to 23.2 compared to a rise of 18.1 in the previous month.

With a number of top-tier data releases this week, the Euro could be in for a bumpy ride. Eurozone-wide sentiment and confidence stats have improved this morning, while German inflation is set to rise when released this afternoon.

According to figures from the Bank of International settlements last week, banks are using the Euro less and less in international transactions, with financiers preferring to use Dollars – indicating the Euro’s declining importance in the global economy.

Sustained political risks in the Eurozone, fears that the currency area could fall apart, and the continuing hangover from the sovereign debt crisis have all contributed to the currency’s relative decline.

USD

President Donald Trump made his bombastic entry into politics last week, creating turbulence for the Dollar as he altered US trade, health and immigration policies.

Trump is expected to push for tax cuts and more infrastructure spending – a policy mix that economists say is bullish for growth and could light a fire under the greenback.

“Trade protectionist policies are bullish for the Dollar; the dollar has been correcting for the first month or so of this year. There’s a reasonable chance, I think, that the dollar goes higher,” according to Raoul Pal of GMI, who predicted the Dollar rally in late 2014 – gaining 16% since.

Rest of the World

The Bank of Japan is set to keep monetary policy steady on Tuesday and seek to allay speculation of an early tapering of its massive stimulus, as recent bond market turbulence puts to the test its revamped policy framework that aims to control the yield curve.

Japanese government bond yields spiked last week after the BOJ skipped a much-anticipated auction to buy short-term debt on Wednesday, leaving investors wondering about its intentions and casting doubt on its resolve to cap bond yields.

International use of the Chinese Renminbi dropped sharply in 2016 as capital controls and Dollar strength reduced the attractiveness of China’s currency.

The Society for Worldwide Interbank Financial Telecommunication (Swift) said the value of international Renminbi payments fell 29.5 per cent compared with 2015.

The Renminbi was only the sixth most used currency in 2016 despite its formal recognition in October by the International Monetary Fund as a global reserve currency.

Data this week 

Tuesday:

Bank of Japan Interest Rate Decision

Eurozone Gross Domestic Product (Q4)

Eurozone Consumer Price Index (YoY Jan)

Wednesday:

Federal Reserve Interest Rate Decision

US ISM Manufacturing PMI

Chinese NBS Manufacturing PMI

Thursday:

Bank of England Interest Rate Decision, Inflation Report and Minutes

Bank of Japan Minutes

Friday:

US Non-farm payrolls

US Unemployment rate