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National emergency and Brexit deadlock keep markets volatile

Political developments and lacklustre economic data headlined for much of last week, delivering significant swings for many currencies. Even if economic data is thin on the ground in the week ahead, political developments are likely to continue driving the currency market. UK politicians have had this week’s planned parliamentary recess cancelled in a bid to break the Brexit deadlock, and Donald Trump is declaring a national emergency to fund his border wall with Mexico. Trade talks between China and the US are set to resume too, with delegations moving from Beijing to Washington.


The week is set to start on a relatively quiet note, with US markets closed to observe the annual Presidents’ Day holiday. Elsewhere, economic releases are also looking thin on the ground.

Stephen Barclay, the UK’s Brexit Secretary is due to meet the EU’s Chief Negotiator, Michel Barnier, in Brussels for further talks. There is some speculation than an annexe to the original withdrawal agreement may be discussed as a compromise, rather than amending the existing note.        


The protracted Brexit wrangle has clouded the UK’s economic outlook, but an argument can be made that the underlying economy is in a reasonable place. This week, the headline Unemployment Rate figure is forecast to decline from December’s 4.0% to 3.9%, and Average Earnings Including Bonuses is set to grow by 3.3%. For the past several months, fundamental data has been all but ignored in favour of political speculation.  Only markedly different numbers are likely to draw any market attention.

The forward-looking German Economic Sentiment Index reading for February is expected to show a worsening picture, with a decline from last month’s -15 print. Forecasts are for a reading of -18.4 which would make for the 11th consecutive negative number. This would be the worst such run in almost a decade and reinforce the downbeat outlook for the Eurozone economy. However, if an uptick is seen, this could lend some support to the Euro.


Uncertainty regarding the slowdown in China and its impact on closely tied economies, like Germany, have been a key theme in 2019. Market participants have been monitoring forward-looking data like this week’s Consumer Confidence reading, for hints at emerging softness in EU data at large. The expectation is for a print of -8.2, which could contribute to further negative EUR sentiment.

The latest Federal Open Market Committee (FOMC) meeting minutes are scheduled for release. These relate to the meeting held at the end of last month, and although the Fed made its position over the policy outlook clear at that time, any clues on how it intends to manage the risk of rising inflation could provide fresh direction for the Dollar.


UK Public Sector borrowing data for January will be released and is expected to show a surplus of £10.5 billion. This is a seasonal spike as tax receipts are always higher for the month, so typically deliver a surplus, but such a print would be greater than was seen in January 2018 when a reading of £10.17 billion was recorded. With the Pound struggling to find favour right now, a solid reading may be sufficient to at least limit further losses in the short-term.

December’s US Durable Goods orders are set for release today, and despite the reports of a worsening economic backdrop in the US, this figure is forecast to impress. However, some caution should be applied as this is an old figure and won’t really see much impact from the recent government shutdown. Expectations are for a 2.5% increase on the November figure, although this would give an average for the year of just 0.35%.

The European Central Bank’s (ECB) Chief Economist will also participate in a panel debate on whether the bank is returning to standard policies a decade after the credit crisis. Given the worsening economic outlook in the Eurozone, these comments will be under close scrutiny.


The German Ifo Business Climate survey is forecast to show another modest decline with the consensus being for a dip from 99.1 to 99.0. That would make for the seventh consecutive fall in the reading and underline the bleak outlook which is being adopted by businesses throughout the Eurozone’s economic powerhouse. The forward-looking nature of this print adds to its significance and has the potential to exaggerate any related impact on currencies. 

The Federal Reserve Bank of New York’s President participates in a panel looking at the ‘Prospects for Inflation with a High-Pressure Economy’. Given the slowing picture for inflation at present and the risk this could pick up dramatically later in the year, comments here could bring with them some meaningful direction for the US Dollar.