The Forex Week Ahead

The Forex Week Ahead: March 27th – 31st

The Forex Week Ahead USD aside from the ongoing political turmoil relating to the US Healthcare reform bill key data this week comes in the form of core-PCE inflation for February which is an important release. It has been stuck in a 1.6-1.7% range since the start of last year. Although, Fed Chair Yellen recently stated that she expects core-PCE inflation is “going to move up to 2” percent. It is forecast to have held at 1.7% in February. Stable inflation, combined with signs of earnings growth rising towards 3%, suggest a pick up in real wage growth in the US. This should help to support the key consumer side of the economy. In that regard, personal consumption is forecast to have risen by 0.2% in nominal terms in February, with personal income anticipated to increase by 0.4%. Q4 GDP growth will be subject to the third and ‘final’ estimate in the current round of quarterly revisions. The initial print of 1.9% GDP growth in Q1 was left intact in the first round of revisions. This next round will incorporate more complete services data Fed-speak will continue and will be dominated by regional Presidents including two 2017 voters (Evans twice, Kaplan three times), one alternate FOMC member Williams.
EUR Data-wise, Eurozone flash HICP for March will be closely followed this week, given its importance to ECB policy deliberations. While ‘headline’ inflation has been on an upward trend in recent months, core inflation (ex-food & energy) remains muted. Indeed, the ECB has emphasised that measures of underlying inflation “have remained low and are expected to rise only gradually over the medium term”. Headline inflation is forecast to edge down to 1.8% in March, from 2%, with the data likely impacted by last year’s earlier timing of Easter. Meantime, core inflation is expected to have remained at a subdued 0.9% for a fourth consecutive month. .
GBP The official Brexit process finally gets underway this week, with the triggering of Article 50 by the UK on Wednesday. While the UK’s relationship with the EU will not change until it actually leaves the EU, probably in March 2019, this week’s formal declaration will still likely attract considerable attention. In this regard, note a speech last Wednesday by Michel Barnier, the EU’s Chief Negotiator on Brexit, that got surprisingly little publicity given its content and importance. He went a long way in outlining how the exit talks with the UK are likely to proceed. A number of points came shining through. The EU is very much up for reaching a broad free trade agreement with the UK, but this must be based on “a level playing field” in areas such as the environment, taxation, labour law and consumer rights that avoids “regulatory dumping”. He recognised that this could take time to agree, so there may be a need for transitional arrangements post-Brexit. These cannot amount to a cherry-picking of the Single Market and must be subject to European law. He warned of dire consequences if no deal is done and stated that “the no deal scenario is not our scenario. We want a deal”.
JPY Japan conducts its monthly data dump next week. It will release updates for CPI, retail sales, the jobless rate, household spending, industrial production and housing starts. The more important of the measures will be CPI that is expected to continue to hover slightly above 0% in year-ago headline and core ex-fresh food and energy terms.

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