Worry among investors has returned with less than two months until Britain is due to exit the EU with no obvious path to a deal in sight. With a stalemate over Brexit weighing on the home currency, the Bank of England has cut its UK growth forecast for the pound. This has caused the pound to shed some of it’s recent gains. With no obvious way out of the Brexit deadlock in parliament and May yet to secure any concessions from Brussels, the pound faces further downside risks. PM May will return to parliament on Thursday for a debate on the Brexit negotiations, when lawmakers could again try seizing control of the process from her, but a vote on approving the Brexit deal is likely to come later in the month.
The week ahead:
Brexit remains the key driver for Sterling with headlines strengthening and weakening the pound as they are released. May will make a statement to parliament on Wednesday, updating lawmakers on her progress so far in seeking changes to her deal. Following this Thursday’s debate in parliament will likely be another cause of volatility for the pound. The main data release for sterling will be Q4 and December GDP data out at 9.30 GMT today. This is followed by inflation data at 9.30 GMT on Wednesday.
The key Eurozone release will come from Germany on Thursday, when fourth quarter growth data will be released at 07.00 GMT. The forecast is to show a rise of 0.1%, compared to the previous quarters decline of 0.2%. A Q4 decline would be the second consecutive quarter of negative data which would by definition be a technical recession, this would have a negative impact on the Euro. Also on Thursday, employment data for Q4 will be released, due at 10.00 GMT. This is forecast to show a 0.2% rise in people in employment compared to Q3.
The main release for the Dollar will be inflation data out on Wednesday, this comes after the Federal Reserve has communicated to markets that it would shift to a more data-driven stance when considering future interest rate moves. Higher than forecast inflation would be positive for the dollar while below forecast could see some losses. December retail sales will be released on Friday, the data was due earlier in the year, however had been postponed by the Government Shutdown.