Brexit heat set to ease this week
With an extension to Article 50 agreed and Parliament on Easter recess, we get a break from Brexit news this week. Here's what that means for sterling
USD: Solid US data to undermine case for Fed rate cut
The US data scheduled for this week should show that the market pricing of a Fed funds rate cut for this year remains rather premature. The March retail sales (Thursday) and February trade data (Wednesday) should paint a picture of a solid US economy. As our economists point out, the Atlanta Fed’s GDPNow model is pointing to 1Q GDP growth of 2.3%, based on the data received so far, and the upcoming reports have the potential to push that growth rate well above 2.5%. This suggests little sign of a recession yet. Such readings should be supportive for risk sentiment (i.e. solid economy but still cautious Fed which is no longer on autopilot) and further help emerging market FX. The Mexican peso remains our top EM pick. USD/MXN already broke the 18.80 support level and the peso is set to benefit further. Despite yet another attack from President Trump on the Fed’s independence over the weekend, we don’t expect the central bank to change course and cut interest rates.
EUR: Looking for potential signs of green shoots
It is a fairly quite start to the week on the eurozone data front, with the key event being the April PMIs on Thursday. Following the upward revision to the initial March releases, all eyes will be on any additional signs of stabilisation – mainly the Manufacturing PMIs which have remained in contractionary territory. Signs of stabilisation should modestly help the euro and prevent EUR/USD from slipping below the 1.1200 level this week.
GBP: Brexit heat set to ease this week
Brexit heat is set to ease this week as an Article 50 extension was agreed and Parliament is on Easter recess. Cross-party talks between the Prime Minister and Labour will continue in the background, but the odds of a positive outcome are rather low. Although some UK data this week should be positive (wage growth looks set to remain strong), the positive spillover into sterling should be fairly limited as the prospects of a Bank of England rate hike this year have been dented. EUR/GBP to stay above 0.8600 today with a bias towards 0.8800 in coming months as a possible Conservative party leadership contest unravels (see Brexit: We expect sterling gains to stall).
JPY: Moving above the 112.00 level
USD/JPY is testing the 112.00 level and we expect the cross to break above this level this week in response to solid US data and stabilising risk appetite. The prime driver of USD/JPY remains US data and the risk environment, with domestic Japanese data having a limited impact on the currency at this point.
"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).