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Currency Feed – Monday 13th March

A huge week in markets – volatility guaranteed

Monday – Article 50

As Pope Francis begins his fifth year of ministry today, Theresa May will be looking for some divine intervention as it is widely reported that the Prime Minister is on the brink of formally launching Britain’s departure from the EU as rebel Tory MPs admit they are unlikely to have the numbers to block the Mrs May in the House of Commons on Monday. May could trigger Article 50 any time from Tuesday if she succeeds in heading off the rebellion by a small band of Europhile MPs. That will start the complicated two-year process of unravelling more than 40 years of EU membership.

David Davis and Liam Fox, two of Britain’s most senior Brexit ministers, both admitted that Britain was preparing for a scenario where the UK had no deal with the rest of the EU. Tim Farron, Lib Dem leader, said their acknowledgment showed the government was “playing Russian Roulette” with people’s economic wellbeing. But both ministers insisted they were confident a deal could be struck with the other 27 EU countries.

Mr Davis, Brexit secretary, on Sunday urged Conservative MPs not to “tie the prime minister’s hands” in the vote on Monday evening. He said he understood the importance of parliamentary accountability but added that the Article 50 bill should be kept as simple as possible to give the prime minister room to manoeuvre. Most people just wanted Mrs May to get on with the job regardless of how they voted in last summer’s EU referendum, he said.

The government is trying to reverse two amendments passed by the House of Lords last week. One promised a “meaningful” parliamentary vote on the final deal with the EU, while the other gives protection to EU nationals living in Britain.

Some rebels have admitted in private they are unlikely to muster sufficient numbers to prevent a government victory on Monday evening, not least because the Democratic Unionist party and some Labour MPs would support Mrs May. That means the bill could return to the Lords on Monday night, where it is expected to pass swiftly in deference to the will of the Commons.

The legislation could achieve Royal Assent on Tuesday, when Mrs May will update the Commons about last week’s EU summit: she could use the moment to announce she is triggering Article 50. Even if that timetable proves too tight, aides are “certain” the process will begin before the end of the week.

Wednesday – Decision day for Dutch voters

The Dutch head to the polls in the climax of an extraordinarily close race, with barely 5 percentage points separating the parties in first and fifth places. The centre-right People’s Party for Freedom and Democracy is the largest party in most polls with about 16 per cent of the vote, just ahead of far-right rivals Party for Freedom, which is led by populist Geert Wilders. Beyond them, a trio of mainstream parties are vying for third place. The Christian Democratic Alliance are neck and neck with centrist D66. Just behind them is GroenLinks, a leftwing party that has enjoyed an extraordinary resurgence in the past year. After picking up just four seats in the 2012 election, they are forecast to gain as many as 20. The closeness of the race means that the Netherlands is likely to face months of complicated coalition negotiations, with four or even five parties necessary to form a majority. All mainstream parties have ruled out forming a coalition with Mr Wilders, meaning that the peroxide blond Dutchman is unlikely to play any role in the next Dutch government.

Mr Wilders’ calls for a referendum on EU membership had been the primary cause of concern over the past year for investors. The focus will be on how the populist-right wing People’s Freedom Party (PVV) of Geert Wilders will fare for pointers to the strength of populist movements elsewhere in Europe ahead of upcoming polls in France, Germany and (possibly) Italy.

US rates and Trump’s first budget

Upbeat US economic data and hawkish remarks from a number of Federal Reserve officials including chair Janet Yellen has economists widely forecasting the central bank will lift rates by a quarter percentage point, adding to its December rate rise when it meets. But following its two-day meeting the Fed will update its economic projections including GDP, the personal consumption expenditures index and the so-called dot plot that signals the path of interest rates. And investors will get to hear from Ms Yellen during a press conference.

Policymakers have currently pencilled in a median projection of three-quarter rate rise increases this year, up from two previously and investors will watch for any changes to the dot-plot for this year and the next. But some expect the Fed may await more details on President Donald Trump’s fiscal plans. Mr Trump’s administration has previously signalled that it plans to unveil its fiscal 2018 budget outline by mid-March. The budget is slated to include a $54bn rise to military spending and most other discretionary spending programmes are likely to be cut to pay for it

Thursday – BoE meets to set rates

The Bank of England’s Monetary Policy Committee will meet to decide whether or not to implement any changes to the current historically low interest rate or asset purchase programme. Since November, the bank has maintained a firmly neutral line, saying the next interest rate move is as likely to go up as down. Virtually no one is expecting them to announce any action this week. There has not been any dissension from the majority line since August, when Kristin Forbes and Ian McCafferty voted against the latest expansion of the bond-buying programme. Markets are pricing in the first interest rate increase for late next year. But the committee are walking a fine line at the moment. They say they are happy to look through the expected sharp rise in inflation later this year, as this is expected to be a one-off currency driven effect. But, with unemployment still at just 4.8 per cent and growth stronger last year than they had expected, they are under pressure from some to explain why they are keeping policy so loose. It will be the first MPC meeting attended by the new deputy governor for markets and banking, Charlotte Hogg. But this is the committee for which her brother’s now well-known role at Barclay’s bank is least likely to create any potential conflict of interest.

In early trade this morning the dollar index was off 0.1 per cent at 101.2. The Japanese yen was flat at ¥114.7 per dollar, while the Australian dollar climbed 0.3 per cent on its US counterpart to $0.7563. The UK pound was up 0.1 per cent against the dollar at $1.2178 amid expectations that Theresa May, prime minister, could trigger Article 50, the mechanism for Brexit, as soon as Tuesday.

EUR/USD – Current Price $1.0703 (+$0.0029)

EUR/USD opened in Asia at $1.0668 towards the upper end of Friday’s range. We began the session on the back foot, falling to a session low of $1.0662 instantly after the open. The market has found support as the session wore on, rising to today’s high of $1.0707. The market has since eased off the highs as we approach the European open, trading at $1.0703. On the upside, we look to the overnight high of $1.0707 ahead of the February 8th high of $1.0714. On the downside, the overnight low of $1.0662 and the 10th March low of $1.0573 are in focus.

GBP/USD – Current Price $1.2212 (+$0.0045)

Cable opened in Asia at $1.2171 towards the upper end of Friday’s range. We began the session on the back foot, falling instantly to today’s low of $1.2147, before rebounding straight away to today’s high of $1.2221. The market stabilised as the session wore on, falling to lows of $1.2155/1.2156/1.2157 where it had found support. The market has gone on to around the highs of the day as we approach the European open, trading at $1.2212. Resistance we look to the 9th March high of $1.2194 ahead of the 7th March high of $1.2252. On the downside, the 10th March low of $1.2140 and the 16th January high of $1.2085 are in focus.

USD/JPY – Current Price ¥114.56 (-¥0.23)

USD/JPY opened in Asia at ¥114.84 towards the lower end of Friday’s range. We began the session on the front, rising instantly after the open to today’s high of ¥114.95 and rebounded back down to around the lows following the open. The market found support as the session wore on, rising ¥114.92. The market has set a fresh session low of ¥114.51 as we approach the European open. Support we look to the overnight low of ¥114.51 ahead of the 6th March low of ¥113.56. On the upside, the Overnight high of ¥114.62 and the 10th March high of ¥115.51 are in focus.

GBP/EUR – Current Price €1.1418 (+€0.0021)

GBP/EUR opened in Asia at €1.1397 towards the lower end of Friday’s range, we began the session on the back foot, falling to today’s low of €1.1380. The pair then found support as the session wore on, where it has gone on to set a fresh high of €1.1420 as we head into the European open. On the upside, the overnight high of €1.1420 may offer some resistance ahead of the 10th March high €1.1475. On the downside, the overnight low of €1.1380 and the 17th January low of €1.1345 are in focus.


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