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FX Week Ahead: FOMC Meeting Minutes, UK GDP Revision

The week ahead is relatively quiet on the economic front as the markets are likely to take a breather from the Trump rally. The lack of economic data shifts focus to the FOMC meeting minutes which stands out against a quiet week from the US and comes just ahead of Thursday’s Thanksgiving holiday. In Europe, IHS Markit’s flash PMI’s will be in focus shedding light on the preliminary manufacturing and services landscape for November.

Eurozone Flash PMI data

It has been a long and hard week for most currencies against the US dollar. The euro posted one of the longest losing streaks in a while, falling for a straight 9-day. Comments from the ECB officials did not help either. ECB President Mario Draghi did not sound too upbeat on the prospects of QE tapering in December noting the lack of conviction in inflation, while ECB’s Mersch last week was more explicit in noting that it was too premature to talk about tapering the ECB’s monetary stimulus program.

ECB President Mario Draghi will be speaking again next week to the European Parliament. Nothing new is expected to come out of this event after on Friday, the ECB President said the economic recovery in the eurozone was pinned on ECB stimulus, indirectly hinting that the €80 billion a month of bond purchases will likely be extended, a decision that could be taken when the ECB meets next in December. “We cannot yet drop our guard,” Draghi said a banking conference in Frankfurt. “The ECB will continue to act, as warranted, by using all the instruments available,” he said.

Markit Eurozone Composite PMI: 53.3

Manufacturing and services PMI is expected to remain fairly stable from October although services sector is expected to outperform manufacturing. The German Ifo business climate data is due out on Thursday and is expected to show an insignificant increase to 110.6 from 110.5. In October, the Ifo business climate posted strong gains as the index rose to the highest level since April 2014.
FOMC Meeting Minutes

The US markets will be closed on Thursday for Thanksgiving holiday, and on Friday US markets will be closing early. The short trading week puts the focus on the November FOMC meeting minutes where the Fed was seen holding rates, although giving an upbeat picture. In light of last week’s comments by Fed Chair Janet Yellen, the November FOMC meeting minutes will be unlikely to change the market sentiment.

US short-term interest rates are poised to increase by another 25 basis points in December. Speaking to the Joint Economic Committee in Washington, Yellen testified saying that a rate income would come “relatively soon” citing the progress in the US economy. Her comments were also supported by last week’s consumer inflation which continued to firm while on the housing side, the housing starts for October rose at the fastest pace since August 2007.

The CME Futures’ Fed Watch tool assigns over 90% probability of a rate hike in December. Even the stock markets look to be prepared for a rate hike as the markets edged higher on Thursday following the hawkish comments from Janet Yellen.

US Consumer Price Index: 1.6%, y/y October 2016

Besides the FOMC meeting minutes, US durable goods orders will be the other data point of interest with the headline print expected to show a 1.2% increase while core durable goods are expected to rise 0.2% in October following a -0.3% and 0.1% print previously.

UK Q3 GDP – Second revision

In the UK, the third quarter GDP figures are up for revision this week, but economists do not expect to see any major revisions. This could potentially bode well for the British pound which has managed to weather the impact of the June referendum. After the US elections, the Sterling got an additional boost as US president-elect Trump and British PM Theresa May are being seen on very cordial terms, while most world leaders continue to grapple with the uncertainty.


UK GDP, Q3 2016: 0.5% q/q

On the economic front, data from Britain last week shows consumer spending surging as retail sales rose at the fastest pace in 14 years. ONS data showed that retail sales volume in October increased 7.4% from a year ago, while on a month over month basis, retail sales jumped 1.9% from September.





Monday, 21 Nov, 2016 / 8:06

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