Will the EU and UK concur?

7 March, 2017

FED rate hike

Some FED members have subtly been hinting towards a spring surprise and last Friday Yellen had no other choice than to agree with the statement. She admitted during her speech in Chicago that March hike “would be quite appropriate” while warned us about the fallout from the delay in tightening. The phrase “if the economy remains on the current track” has almost become a part of the “law”, how to avoid making straight forward forecasts and keep manoeuvring room, in case there are changes. On the other hand, the market took the comment as a sure confirmation of a rate hike in March and started reacting unpredictably, selling the Dollar on seemingly bullish statements. The American currency fell from a peak of 102 to the territory below 101.50, showing weak potential growth on Monday. The Greenback trading in this week will be fuelled by the NFP expectations, although only weak figures would be adding thrills to this game. This is unlikely to happen due to the largely strong unemployment claims and consumer confidence data in the last month. Trump statements considerably lost their potential to move markets, as the address before the Congress was just a repetition of old campaign promises, which lacked actual data. Investors turned their attention towards FED, as everything seems to be rather clear about the upcoming meeting.

Looking for cues

The European currency appears to be moving away from the bear’s grip that is trying to cause an offensive approach. The European bonds are a source of bullish signals and indicate the yield curve considering the political fate of the European Union.  The German and French 10YR bond yields have been steadily rising from the end of February, which could imply that the economic data will steer further from the lax political consequences ahead of the elections. The European currency will probably navigate towards the monthly peak of 1.08, as investors will be looking for cues from the ECB regarding the tremendous economy support.

UK and EU – will there be a trade off?

Britain sterling extends sinking in the lacklustre economy data and a political uncertainty. The terms of exit from the EU are still a subject for debate between both sides, this hinders the estimation of future growth of the independent UK. On one hand, control over the immigration flow should boost wages and the opportunity to acquire new trade partners, which expands the trading potential of the country. On the other hand, losing access to the EU single trade market, a subsidy to the English farmers, uncertainty with Britons living in the EU, and many other problems may outweigh all pros from the exit. That’s why investors are in no hurry to wager on economic growth. The Medium-term target for sterling remains at 1.20 level in case the EU and UK will not be able to reach a trade-off in Brexit talks.

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