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Pound climbs on Cabinet reshuffle, UK and EU on course to clash over trade

Markets expect larger spending boost in Budget

The Pound climbed towards the end of last week after a shakeup in Boris Johnson’s Cabinet. UK Chancellor Sajid Javid resigned and was replaced by close Johnson ally, Rishi Sunak. Sterling strengthened as markets bet the new UK Chancellor would deliver a significant spending boost in the March Budget. This week, labour market stats will be released, including wage data which is expected to fall from 3.2% to 3.1% in the three months through December on the year. Wednesday will continue with the influential data with the release of inflation numbers for January on the year—expected to take an upswing from 1.3% to 1.7%. UK Retail Sales, and manufacturing and services figures will all be out later in the week. Alongside economic data, any conversations between the UK and EU could create Sterling movement, as negotiations begin to shape up. Trade tensions between the UK and EU have been heating up, with French Foreign Minister Jean-Yves Le Drian saying that the two were on course to clash. He said on Sunday: 'On trade issues and the mechanism for future relations, which we are going to start on now, we are going to rip each other apart. But that is part of negotiations, everyone will defend their own interests.'

Euro falls as weak data continues to emerge

Last week, the Euro dropped to its lowest level versus the US Dollar in two-and-a-half years, while falling to an almost two-month low versus the Pound. A string of weak Eurozone data has been putting pressure on the common currency. Additionally, data printed showing German growth has stagnated in Q4 which forced the Euro lower, especially as coronavirus concerns increased, causing higher demand for safe-haven assets. This week, a few pieces of important German data will be out which could create some market movement, especially after last week’s growth revelations. Both the Eurozone and German ZEW Economic Sentiment surveys will be out on Tuesday, followed by German manufacturing and services data on Friday. Additionally, the European Central Bank will release its latest monetary policy meeting accounts, which could impact the Euro.

Markets await Fed meeting minutes

In the first few months of 2020, the US Dollar has put in the strongest performance compared to other G10 currencies. The ongoing coronavirus has helped to boost safe-haven assets such as the US Dollar, Japanese Yen, and Swiss Franc and caused weakness in riskier currencies. One of the main events for the US data calendar this week will be the Federal Reserve’s latest meeting minutes and comments from policymakers throughout the day on Wednesday. At the end of the week, manufacturing and services data will also be out, which could cause some market movement. The US Dollar’s recent rally on the back of strong data, safe-haven demand, and weakness in other majors, appears to be taking a breather on Monday while US markets are closed for a national holiday. A further rise in coronavirus fears could lead investors to buy US Dollars as risk appetite fluctuates.

Coronavirus fears hit Aussie and Kiwi Dollars 

Coronavirus fears have hit the Australian and New Zealand Dollars, as investors weigh up the economic impact the illness could cause Down Under, given China is Australia and New Zealand’s largest trading partner. In recent weeks, the Australian Dollar has hit its weakest level in over ten years as investors attempt to gauge the situation. Meanwhile, the Kiwi Dollar experienced some short-lived strength last week when the Reserve Bank of New Zealand made some upbeat comments. In the week ahead, the Reserve Bank of Australia will release its monetary policy meeting minutes from its most recent gathering. Investors will be looking for any change in tone or language, which may offer the market some guidance on the bank’s monetary policy plan. Additionally, Australian wage, employment, and unemployment numbers will be out across Wednesday and Thursday, followed by manufacturing and services stats at the end of the week. The New Zealand Dollar will have quite a quiet week in terms of economic data, with just a few pieces of moderately influential data out, such as the price change of goods via the Producer Price Indexes. Additionally, another dairy auction at the start of the week could impact the way the New Zealand Dollar trades.

Oil climbs and Canadian Dollar tracks gains

The Canadian Dollar reached its highest level versus the US Dollar since the start of February last week. Oil is Canada’s largest export, and an increase in black gold caused the Canadian Dollar to climb. Oil prices increased on hopes that the economic impact of the coronavirus wouldn’t be long-term. There are a few influential pieces of data out in the week ahead which could cause some Canadian Dollar exchange rate movement, including the latest inflation reading—expected to increase by 0.3% month-on-month—and Core Retail Sales numbers—forecast to grow by 0.4%. in December. Some ADP employment data will also be out during the week and could impact the Loonie, as could any change in oil prices.