US Dollar – Jobs data to show whether the economy is on track
The US jobs data on Friday will be the biggest focus for the week, as investors and officials still wait to see if the economy is extending its poor recent readings.
Non-farm Payrolls are forecast to rise 180k in February after increasing by a very strong 304k in January. Most of the attention, however, will not be on the headline payrolls figure but on the accompanying wage data since this has more of a bearing on inflation and therefore Federal Reserve policy on interest rates. Average hourly earnings are expected to have risen by 0.3% in February from 0.1% in January. A greater or lesser-than-expected rise could impact on the U.S. Dollar.
Higher wages equal higher inflation normally, and this puts pressure on the Federal Reserve's FOMC to raise interest rates. Higher interest rates tend to push up the value of a currency by attracting and keeping greater inflows of foreign capital.
Sterling – Brexit votes sooner than we think
The main releases for the Pound next week are services and construction PMIs for February, although, the possibility of an early meaningful vote on Theresa May’s latest Brexit deal remains an overarching risk.
If Theresa May can win concessions from the EU on making the Irish backstop temporary, she may bring forward the meaningful vote before the March 12 deadline date, which means it could happen as soon as next week.
Due to political manoeuvring, any deal that is agreed has a higher chance of getting voted through than was the case in January when the deal was shot down by parliament. Brexiteers fearful of Brexit being reversed could be more prone to back May, provided she can get a legal concession on the backstop. Last week Sterling rose sharply after the PM announced a series of votes would take place in the event of her Brexit deal being rejected: one of them would be a vote on requesting a delay to Brexit.
Euro – Draghi could extend QE
The main event for the Euro is the European Central Bank (ECB) rate meeting on Thursday at 12.45; whilst no change in policy is expected there is a risk the Bank could announce it is extending its TLTRO programme which provides Eurozone banks with cheap lending, and this would be seen as a de facto form of easing, which could weigh on the Euro.
The ECB was supposed to be hurtling towards an interest rise in 2019, and reopening the TLTRO programme represents a turn away from tighter monetary policy that in turn suggests an interest rate rise has now been kicked forward deep into 2020.
At its previous meeting, the ECB stuck to its roadmap of returning crisis-era monetary policy to normal, which included raising interest rates back up to positive levels after the summer of 2019. If it changes this view, reflected in, perhaps, a change of wording in its statement, this could definitely weigh on the Euro because higher interest rates, or the expectation thereof, is generally positive for a currency, as higher rates attract and keep greater inflows of foreign capital.
At the meeting, the ECB will also release its forecasts for the year. If they reveal a deeper-than-expected downgrade in forecasts this too could have implications for the Euro which could take any major downgrades negatively. As a comparison, the European Commission's own figures, released at the end of 2018, showed a downward revision of Eurozone growth expectations in 2019 from 1.9% to 1.3%.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies