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FX Markets Look to Article 50 Trigger, Fed Rate Hike, Aussie Jobs, BOE

FX Markets Look to Article 50 Trigger, Fed Rate Hike, Aussie Jobs, BOE

Talking Points:

- The quick progression of ‘Brexit bills’ through UK parliament means that Article 50 – the mechanism to take the UK out of the EU – may be triggered as early as Tuesday.

- FOMC on Wednesday is a lock to raise rates; the question is, how many more times will the Fed be looking to hike over the remainder of 2017?

- Australian jobs data eyed after a run of better than expected data out of Q4’16 into Q1’17.

Join me on Mondays at 7:30 EST/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

03/14 Tuesday | --:-- GMT | GBP UK PM Theresa May Given Power to Trigger Article 50

With both house of the UK parliament on the verge of passing the Brexit bill – much faster than anticipated, mind you – the UK could be close to officially triggering its exit from the European Union. UK Prime Minister Theresa may could be finally handed the power to enact Article 50 by as early as Tuesday, which could put in stone, at least in the markets’ collective minds, that the UK is hurtling towards a ‘hard Brexit.’ A last minute amendment guaranteeing the rights of EU nationals living in the UK is expected to fail. One of the more important knock-on effects to watch for over the coming sessions will be to see if Scottish First Minister Nicola Sturgeon responds by announcing a second referendum for Scottish independence from the UK; Scotland voted 62% in favor of ‘Remain’ on June 23, 2016.


03/15 Wednesday | 12:30 GMT | USD Consumer Price Index (FEB)

According to a Bloomberg News survey, US consumer prices were flat in February relative to the month prior, but increased by+2.7% from +2.5% on a year-over-year basis. The core readings should be similar, at +0.2% from +0.3% (m/m), and at +2.2% from +2.3% (y/y). These figures aggregately are pushing through the Fed’s +2.0% medium-term target, which not only means they should be strong enough to keep the Fed on track to hike rates as many as three times this year, starting with one later in the day when the FOMC meets. A faster rate of inflation may not only reflect the base effect provided by energy prices, but may also be the result of the tightening labor market, which has accelerated wage growth in recent months (+2.8% y/y for two consecutive months).

Pairs to Watch: EUR/USD, USD/JPY, DXY Index

03/15 Wednesday | 18:00 GMT | USD FOMC Rate Decision & Press Conference

The Federal Reserve will hike rates by 25-bps at its upcoming meeting on Wednesday. This is a certainty, according to Fed funds futures contracts, with a 100% chance of a hike expected (96% chance of one hike, 4% chance of two hikes). Yet this may be the most easily anticipated rate move higher in recent memory (certainly, markets have more confidence than they did back in December). The question is whether or not the Fed feels it can justify outlining a path to three or more rate hikes in 2017. As it stands at the start of the week, odds of a third hike by December were 59.6% - just below the key 60% threshold we use to make a rate hike call (or not). For the US Dollar, the more important issue may be whether or not the Fed feels that fiscal reform will actually materialize; without tax reform and infrastructure spending, the feedback loop of higher deficits leading to higher inflation thus necessitating tighter monetary policy from the Fed will breakdown and hurt the greenback.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index

03/16 Thursday | 00:30 GMT | AUD Employment Change & Unemployment Rate (FEB)

Employment increased by +13.5K in January, beating market expectations, according to data from the Australian Bureau of Statistics. This was the fourth consecutive month of increasing employment, helping to pare back some of the eight consecutive months of job decreases seen earlier in 2016. The unemployment rate was steady at 5.7%. Further improvement is anticipated for this coming Thursday, when the economy is anticipated to have added +16.5K jobs. In its latest consultation paper, the IMF expects Australian unemployment dropping from its current level to 5.1% in 2022. The fund added that "With inflation below target, still elevated underemployment, and remaining economic slack, the monetary policy stance should remain accommodative."

Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD

03/16 Thursday | 12:00 GMT | GBP Bank of England Rate Decision

The Monetary Policy Committee (MPC) is expected to leave interest rates unchanged at 0.25% with little changed in the last month to deviate the central bank from its neutral policy basis. The £435 billion gilt purchase program is expected to hit target before the MPC meeting on Thursday with no additional stimulus expected, while the £10 billion corporate bond purchase program is expected to be filled by May this year.

BOE governor Mark Carney is expected to communicate a ‘steady as she goes’ outlook, despite the parts of the UK economy showing signs of a downturn. UK retail sales have been weak in the last two to three months, as consumer spending becomes crimped, while recent industrial production data also show signs of increased headwinds as the UK prepares to trigger Article 50 (perhaps by this policy meeting, they will already have).

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

Read more: Weekly Trading Forecasts: Expectations Blur with Fed, BoE and BoJ Rate Decisions Ahead

--- Written by Christopher Vecchio, Senior Currency Strategist, Nick Cawley, Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.