Volatility ahead as political events and influential data emerge

Last week’s overriding theme for currency markets was the Pound’s move higher, inspired by the belief that there’s a little more certainty emerging around Brexit. A no-deal departure from the European Union could be disastrous for the UK economy, but the chances of this happening appear to be receding fast. However, there’s still work to be done before final decisions are made, so political as well as economic risks remain.

Monday

It’s a quiet start to the week, with limited economic data set for release. The Chicago Federal Reserve’s National Activity Index is scheduled for publication, although with the reading dating back to December unless there’s a significant shortfall from the forecast of 0.15, this print is unlikely to bring much to the equation. It’s also sufficiently dated that the US government shutdown is unlikely to weigh.

Australia will mark its national day on Monday, while the Bank of Japan (BoJ) will publish minutes of its monetary policy meeting held on the 19th & 20th December.

Tuesday

The US Consumer Confidence reading for January is set to be published. The non-profit Conference Board produces the data, so the calculations should be unaffected by the current government shutdown. Expectations are for a modest decline, falling to 126.0 in January from the 128.1 which was printed last month. However, an undershoot would add weight to concerns that the Federal Government’s pause has had a more widespread impact than may have been expected.

Theresa May is also scheduled to re-table her Brexit bill in parliament. As has been noted already, mounting confidence that a majority of politicians can accept something close to this deal is lending support to the Pound. Although there’s no real expectation that this debate will draw a line under the matter, further positive progress over a compromise will have the potential to consolidate or even extend Sterling’s recent gains.

Wednesday

There’s a busy day of high-profile releases as the end of the month nears. The German Consumer Price Index (CPI) reading for January is expected first and will likely further illustrate the problems being faced by the European Central Bank (ECB). The month-on-month reading is expected to come in at -0.8%, a significant reversion from the 0.1% seen for December.

The US Federal Open Market Committee (FOMC) will make its latest call on monetary policy on Wednesday. There’s no expectation for any change in interest rates, but central bank Chief Jerome Powell’s follow-up press conference will be closely watched for further clarity over the likely path of hikes. Any indication that an even more dovish line will be adopted could prove especially telling for the US Dollar’s near-term outlook.

The privately produced ADP US Payrolls figure is also set to be released. This typically acts as a preview of the higher profile Non-Farm Payrolls print set for Friday. A notable cooling from the December figure of +271,000 jobs created is expected, with a number around +170,000 forecast. Anything below this level will add weight to calls over the damaging economic effects of the US government shutdown and the ongoing trade wrangling. This figure has been running at over 150,000 every month since late 2017, so any decline to these levels could play towards longer-term fears of where the US economy is headed.

Thursday

German unemployment data for January will be published on Thursday. This figure has shown the number of unemployed Germans as falling every month since the summer of 2017. Ten thousand fewer people are expected to be out of work in January, down from the 14,000 reported a month ago.

Friday

The Eurozone inflation reading for January kicks off the new trading month on Friday. Expectations are for the annualised figure to drop from 1.6% to 1.4%, again underlining the difficulties faced by the European Central Bank as it attempts to normalise monetary policy. That would make for the lowest rate seen since the start of the year.

For some, the US Non-Farm Payrolls plus the accompanying wages data will dominate not only the session, but the whole week. Indications of how the political inertia in Washington is affecting the wider economy may be seized upon. The month-on-month figure is expected to contract from December’s 310,000 towards a number a little below 200,000. However, perhaps the most significant stat will be wage growth. This is expected to hold steady at 3.2%, but any shortfall will play to the dovish agenda being set out by the Federal Reserve.