European FX Outlook: German business confidence and UK data in focus

What you need to know before markets open

• Fed raised the target range for the federal funds rate by 25 basis points to 1.50%-1.75% as expected. Although Fed was upbeat on economic outlook adding one more rate hike for 2019-2020, it remained dovish in adding another rate hike for 2018 and that disappointed FX markets.
• The RBNZ left the official cash rate at 1.75% and the brief statement is leaving room for creativity for incoming RBNZ Governor Adrian Orr who is starting next Tuesday.
• The Eurozone manufacturing and services activity looks like has peaked in November-December last year and are decelerating going into spring of 2018, but remain high by historical standards.
• German IFO index of business confidence is due to show a deceleration in March. Should the IFO index follow the pattern of ZEW, the business confidence is set for sudden fall with a current strength of EUR and Trump’s trade wars threatening German export-oriented prosperity.
• The UK retail sales are expected to show signs of revival after two months of overly pessimistic results. For details read my Preview here.
• The Bank of England is widely expected to hold rates steady in March with the case building up for  Bank rate rise in May together with May Inflation Report and the press conference that follows. This is likely to be confirmed with Brexit headlines that are set to provide less uncertainty after the end-of-the-week European summit. For details read my Preview here.

Thursday’s market moving events

• Australian employment is expected to rise 20K in February.
• French manufacturing PMI is expected to decelerate to 55.5 in March while composite PMI is expected to pull back to 57.0 in March.
• German manufacturing PMI is expected to decelerate to 59.8 in March while services are seen falling to 55.0 and composite PMI is expected to pull back to 57.0 in March.
• The Eurozone manufacturing PMI is expected to decelerate to 58.1 in March, services PMI is to fall to 56.0 and composite PMI is expected to pull back to 56.7 in March.
• German IFO index of business confidence is seen decelerating to 114.8 in March but might surprise on the downside similarly to ZEW index.
• The UK retail sales are expected to rise 1.3% m/m and core retail sales up 1.2% y/y in February.
• The Bank of England is expected to keep monetary policy unchanged with all nine MPC members seen voting in favor of Bank rate stability at 0.50%.
• The US weekly jobless claims are seen reaching 225K on March 16.
• The US manufacturing PMI is expected to rise to 55.5 with services ticking down to 55.8 and composite PMI decelerating to 55.7 in March.
• The Bank of England Deputy Governor Sir David Ramsden is scheduled to deliver closing remarks at the International FinTech Conference, in London at 17:00 GMT.
• The Bank of Canada Deputy Governor Carolyn Wilkins is scheduled to speak at the Rotman School of Management, in Toronto at 19:00 GMT with the text of her speech released at the Bank of Canada website 15 minutes before the speech is due.

Major market movers

• The US Dollar was sold across the board after Fed issued a rather optimistic outlook for 2019/2020 but failed to meet expectations adding fourth rate hike into the expected path for 2018.
• US Dollar fell more than 1% against CAD with losses of up to 1% against majors like EUR, GBP a JPY.
• EUR and GBP are in focus with German IFO and UK retail sales and the Bank of England meeting on Thursday.

Wednesday’s macro summary

• The UK unemployment rate in three months ending in January ticked lower to 4.3% compared to 4.4% expected.
• The UK average weekly earnings including bonuses rose 2.8% y/y in three months to January.
• The UK average weekly earnings excluding bonuses rose 2.6% y/y in three months to January.
• The UK claimant count rose 9.2K in February compared to -5.0K expected.
• The US existing home sales rose 3.0% in February to 5.54 million.
• The US Federal Reserve increased rates by 25 basis points to 1.50%-1.75% providing a very optimistic economic outlook for 2019-2020. Markets were disappointed with Fed projections failing to add fourth rate hike for this year.