Political Risk For The UK And Dollar Is Braced For Powell

Market Analysis /
26 Feb 2018

It's a week dominated by the Fed as new Chairman Jerome Powell will deliver his first monetary policy testimony on Tuesday starting the weak with an incredibly important event. Powell shouldn’t be in the business of rocking the boat too much this week, and I expect him to reiterate the Fed’s intentions to hike interest rates at least 3 times in 2018. This move could well leave the dollar in a good position, after a few losses this morning, mostly against the pound.

There is a significant political risk in this week’s markets, mainly from the Eurozone and the UK as leader of the opposition Jeremy Corbyn gets set to outline his plan for a permanent customs union with the EU. The idea of this speech is to move closer to the those Tory Remainers and pile more pressure on Theresa May who could find herself with Tory backbenchers voting with the opposition in order to beat the Prime Minister on her Brexit strategy.

This could, of course, give the pound some aggressive moves, as anything previously that has been seen as another speed bump on the road to Brexit has been met with some significant pressure on Sterling. It could well be the lesser of the two dominating stories on cable this week with the appearances by Fed Chair Powell on Tuesday and Friday. However, its likely to be a bumpy road ahead of Sterling pairs regardless with first Corbyn and then Theresa May’s key speech on the UK official political position on the future relationship with the EU. Saying that it could be bumpy for the pound doesn’t mean totally negative, yes, we could see Corbyn put some speed bumps in the way for the week, however anything that removes some of the uncertainty around Brexit will see Sterling upside. So, our hope, and indeed the hope of Theresa May will be that she can reassure backbenchers (a tough ask) but also clear up, as much as she can, the murky picture of post-Brexit Britain.  

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