Trade in danger following G20
The highlight of a quiet weekend was the meeting of G20 finance ministers, coming head to head with the Trump administration, mostly, for the first time. The communique that is typically published as an eager show of conciliatory détente was present although a line that had promised to “resist all forms of protectionism” was absent. The change in the tone of the communique therefore suggests that while the overall plans of the Trump team still remain largely unknown, pledges from the campaign on China, Mexico, NAFTA and a border tax will rear their heads soon.
The dollar has spent the Asian session on its heels and this is the 4th consecutive day of declines; weakness following the Fed was expected but a strong euro following the Dutch elections and the rapid dissipation of that near-term political risk as well as some comments by European policymakers over the chance of rate hikes soon have kept EUR/USD high.
The dollar still looks tired in our eyes and while we are of the belief that there is more upside to come from the greenback it is now relying on weakness elsewhere as much as strength at home to obtain it. Further moves on tax policy and fewer tales of chaotic wrangling of the budget or health care bill would help settle some of the political sentiment. The vote on the health care bill on Thursday could easily hammer the USD should Democrats and blue Republicans manage to spoil the party.
Political sentiment has basically run sterling for the past year with economic data occasionally adding a splash of fact. The weekend’s news suggests that we are no closer to having a date wherein Article 50 will be triggered but friends within the Westminster bubble are still thinking Monday 27th as the most likely date. Today sees Theresa May begin a tour of the UK to try and keep Britain together amid calls for another Scottish referendum and ahead of the Brexit negotiations. I am looking forward to seeing what is written on the side of any buses that she is using.
There are also persistent rumours in the press this morning that the Conservatives are planning an election for May 4th. A snap election may be just enough to push me over the edge but sterling movements would depend on whether any Article 50 negotiations are therefore postponed until after the election.
The highlight of the week for sterling is once again the latest inflation numbers that are due tomorrow. Finally the market consensus has joined us in believing that the rate of inflation as measured by CPI will rise above the 2% target this month. Even if you trust the official numbers, which we have misgivings over, real wage gains are now down to a slither.
French debate tonight
Tonight we see the first French Presidential debate with Jean-Luc Mélenchon, Benoît Hamon, Emmanuel Macron, François Fillon and Marine Le Pen taking to the stage. The debate kicks off at 8pm GMT.
Elsewhere the calendar is pretty quiet.
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