Morning Report: 17 January 2017

17th January 2017 By: Ranko Berich

GBP Sterling has stabilised this morning ahead of Theresa May’s speech at 11:45 GMT. May is expected to outline the government’s approach to Brexit negotiations, but it appears that the main points of her speech have been either leaked or deliberately released, and are being reported in detail this morning. The PM is expected to indicate the government is planning on quitting the single market, and will take a work permit based approach to immigration. These positions are consistent with what has been called a “hard Brexit”, but sterling’s relatively sanguine reaction to the further reports this morning suggest that such a development is largely reflected in current exchange rates. Before May’s speech, the latest Consumer Price Index figures will be released at 09:30 GMT.

EUR The euro has eked out some minor gains versus USD this morning, but aside from that has had a relatively uneventful week so far. This morning’s release of the German ZEW Economic Sentiment survey may liven things up somewhat for the single currency, given the sentiment index is based on a large sample size of German investors and institutional analysts and is expected to reflect a further improvement in overall confidence, following some promising data releases this month. A eurozone wide index will also be released, and the World Economic Forum in Davos will continue throughout the day.

USD USD remains under pressure this morning, with media further dissecting Donald Trump’s comments last week that the US dollar is overvalued and is “killing us”. The US data calendar for the week starts today, after Martin Luther King Day yesterday, with the release of the Empire State Manufacturing Index at 13:30 GMT. Influential Federal Reserve policy makers Bill Dudley and Lael Brainard will both speak today at 13:45 and 15:00 respectively. Brainard is viewed as one of the most dovish members of the FOMC and has influenced the balance of opinion on the committee decisively in the past, so her speech on Monetary and Fiscal policy has the potential to be a significant event.

CAD The Canadian dollar is aggressively recovering from late last week losses and quickly approaching a three-month high against the US dollar. No Canadian data will be released today, so crude oil prices will continue to influence the loonie.

UK News

  • Theresa May to lay out clean break from EU – FT. Theresa May will test the nerves of currency markets on Tuesday when she declares that Britain is making a clean break from the EU and will not seek a deal that leaves the country “half in and half out”. Mrs May’s comments will be seen as confirmation that Britain is leaving the single market — sometimes referred to as “a hard Brexit” — although she will leave open the door to the UK opting back in to parts of the customs union.
  • Bank of England’s Carney says UK reliant on buoyant consumers – Reuters. Britain had one of the world’s fastest-growing advanced economies last year, but the central bank has forecast growth will slow in 2017 as inflation rises above target in response to sterling’s slump since the European Union referendum. In his first speech of 2017, delivered at the London School of Economics, Carney said there were signs that British growth was relying more heavily on consumer spending – rather than investment or exports – which boded poorly for the future.